The Paradox of Uncertainty: The Evolving Hedging Role of Crypto Assets in a Divided World

Written by: Lily Z.King

The global financial system has undergone seismic changes in recent months, highlighting the growing importance of digital assets. The U.S. Bitcoin spot ETF (an exchange-traded fund that allows investors to invest indirectly in Bitcoin) has exploded, with assets under management exceeding $120 billion, reflecting a dramatic shift in investor behavior.

At the same time, the trading volume of stablecoins soared to over $27 trillion last year, surpassing the total transaction volume of Visa and Mastercard. In Asia, some jurisdictions such as Hong Kong have taken the lead by issuing exchange licenses, developing a regulatory framework for stablecoins, and approving cryptocurrency ETFs, striving to establish themselves as a regional hub for the digital asset economy.

These are not isolated events; they reflect a broader reassessment of the practical value of cryptocurrencies in an era of economic fragmentation and increasing uncertainty. We might call it the "paradox of uncertainty": digital assets are moving from the fringes of speculation to the mainstream, unexpectedly becoming a hedging tool against systemic risks.

At a time when governments are erecting barriers to trade and capital flows, blockchain is quietly building a "highway" to promote global capital flows. Gold is still a traditional safe-haven asset, but it can't trade across borders in minutes, let alone bypass the financial system in a crisis.

The enthusiastic response from investors to Bitcoin spot ETFs demonstrates the appeal of the concept of "digital gold". When U.S. regulators approved such products in January last year, many skeptics predicted a lukewarm market reaction. But the truth is that BlackRock's iShares Bitcoin Trust (IBIT) has grown rapidly, with over $65 billion in assets under management, making it the world's largest Bitcoin spot ETF.

Beyond the narrative of "digital gold", the true revolutionary significance of cryptocurrency lies in its ability to construct a new financial system independent of traditional financial intermediaries. At the core of this system are stablecoins: blockchain tokens pegged to fiat currencies like the US dollar.

The stablecoin market has rapidly expanded from 2 billion USD in 2019 to over 200 billion USD in circulation today, becoming an indispensable financial tool in markets where local currencies are unstable or cross-border capital flows are restricted.

The business community has keenly sensed this trend. In October last year, Visa launched the "Visa Tokenised Asset Platform" to help banks issue and manage fiat-backed digital tokens; last month, fintech company Stripe began testing stablecoin payment solutions in emerging markets, making it easier for businesses to access US dollars through digital tokens. Mastercard also introduced new features that support stablecoin transactions.

The dual role of cryptocurrency as a hedging tool and an innovative platform is most vividly reflected in Hong Kong. In a very short period, Hong Kong has transformed from a cautious observer to a leader in the global cryptocurrency regulation and application field.

Since 2020, Hong Kong's Securities and Futures Commission (SFC) has licensed 10 virtual asset trading platforms to regulate cryptocurrency trading by individual investors and institutions. As Hong Kong's Financial Secretary Paul Chan Mo-po said at a recent Web3 event, the move is in line with Hong Kong's strategy to build a "thriving digital asset ecosystem" while strengthening investor protection.

On February 19, 2025, the Financial Secretary of Hong Kong, Paul Chan, attended the opening ceremony of the Consensus conference organized by Coindesk at the Hong Kong Convention and Exhibition Centre. This is the first time in five years that this heavyweight conference in the crypto industry has been held outside the United States.

Hong Kong has adopted a diverse and pragmatic strategy. In April last year, Hong Kong became one of the first jurisdictions in the world to launch Bitcoin and Ethereum spot ETFs. In December last year, the Hong Kong government introduced a stablecoin bill, requiring issuers of fiat-backed stablecoins to maintain sufficient reserves and ensure users' redemption rights, establishing one of the most advanced stablecoin regulatory frameworks in the world.

At the end of November last year, the Hong Kong Financial Services and the Treasury Bureau released a consultation paper proposing to exempt hedge funds, private equity funds, and family offices from taxes on cryptocurrency and other alternative asset gains, clearly signaling the strategic intention to establish Hong Kong as a digital asset hub amid tensions in Sino-Western relations.

This development momentum has continued to heat up this year. In February 2025, the Hong Kong Securities and Futures Commission (SFC) released a regulatory roadmap containing 12 initiatives aimed at further promoting the development and security of the virtual asset industry. The roadmap includes a licensing system for over-the-counter (OTC) trading and crypto asset custody, as well as a more comprehensive insurance and compensation mechanism for virtual asset service providers.

The Hong Kong case is particularly important due to its dual strategic value. Firstly, developing a strong digital asset industry can serve as a financial hedge against global financial fragmentation and uncertainty, while reducing Hong Kong's reliance on the traditional banking system that may be influenced by great power politics. If a split occurs in the future international financial system, Hong Kong can still rely on cryptocurrency infrastructure, including stablecoins, to continue providing a channel for capital flow.

Second, the development of the digital asset industry has also become an important engine to promote financial innovation and long-term competitiveness. Hong Kong not only issued the world's first government-led tokenized green bond, but also launched a pilot project of e-HKD to explore the development path of central bank digital currency. At the same time, local banks and fintech companies are actively piloting the application of blockchain in scenarios such as credit, trade finance and clearing and settlement.

In an era of drastic changes in the global alliance pattern, Hong Kong's positioning in cryptocurrency is not only a hedge against risks but also a strategic investment in the future leadership of finance.

As the global economy becomes increasingly fragmented, with rising tariff barriers and traditional alliances weakening, the market's demand for borderless, neutral financial instruments is also rapidly growing. Born out of the 2008 global financial crisis, crypto assets are designed to respond to such an uncertain era.

The next financial upheaval—whether it be a currency crisis, data channel blockade, or the weaponization of payment networks—will test the maturity of these alternative financial channels. However, various signs are emerging: capital is accelerating its inflow, institutions are adapting, and regulatory pioneers like Hong Kong are consciously advancing their layouts.

We may be standing at the starting point of a historic reconstruction of reserve assets. Not to replace the US dollar, but to hedge against its limitations—a low-key advancement, gradually moving towards a mainstream alternative.