Starting this month, Hong Kong has implemented a local government ordinance related to stablecoins, bringing stablecoins into the regulatory framework. It is reported that over 50 corporations, including major Chinese internet companies, have applied for licenses to issue stablecoins; however, on the day the ordinance was enacted, stablecoin-related stocks in the Hong Kong stock market saw a broad decline. A mood of caution is rising in mainland China as well, with comments suggesting that 'stablecoins can be complementary but cannot serve as substitutes.'
According to the Hong Kong South China Morning Post (SCMP) on the 4th, Hong Kong began implementing the 'stablecoin local government ordinance' starting on the 1st, which includes regulations managing and supervising the issuers of Hong Kong dollar-linked stablecoins. A stablecoin refers to a virtual asset that fixes its value to a physical asset such as the currency of a particular country or gold. Unlike traditional cryptocurrencies, stablecoins can minimize price volatility, leading to a recent surge in movements to introduce domestic currency-based stablecoins in various countries.
The United States has also institutionalized stablecoins recently, as President Donald Trump signed a regulatory law known as the 'GENIUS Act.' China plans to utilize Hong Kong as a testing ground for stablecoins while accelerating the internationalization of the yuan to erode the dominance of the dollar.
Experts predicted that the first company to issue stablecoins in Hong Kong would be a big tech corporation or a bank. Currently, Standard Chartered, JD.com Group, and Ant Group are participating in the sandbox project. When news of these corporations' involvement in the stablecoin business was announced, their stock prices rose, attracting market attention.
However, on the day the local government ordinance took effect, the capital market in Hong Kong was frozen. According to Chinese economic media Caixin and market research firm Wind, the stock prices of major stablecoin-related companies fell sharply on the 1st. Yaochai Securities dropped by 20%, Wanfeng Financial by more than 15%, and OKG Tech, Lianlian Digital, and Guotai Junan International also fell by over 10%.
This is because the approval process for issuing stablecoins by the Hong Kong Monetary Authority (HKMA) is expected to be slower and involve fewer licenses than anticipated. The Hong Kong authorities have indicated that they will initially grant stablecoin issuance licenses to only a select few due to concerns about market overheating, with expectations that the number of approved licenses will be in single digits. The final list of approved candidates is expected to be confirmed only by early next year. Zheng Lei, chief economist at the Samoyed Cloud Technology Group, noted in Caixin that 'contrary to market expectations, some leading corporations may not receive the primary approval.'
The regulatory standards are also stricter than expected. The local government ordinance requires stablecoin issuers to verify the identity of holders due to concerns about money laundering, which is effectively akin to a real-name system. Previously, the Bank for International Settlements (BIS), often referred to as 'the central bank of central banks,' strongly warned in a June report that 'stablecoins do not meet the basic requirements of the currency system' and highlighted their potential misuse as a means to evade money laundering.
Voices cautioning against overheating are also emerging in mainland China. On this day, the Chinese economic weekly Caixin published a cover story titled 'The stablecoin frenzy cools,' citing a senior financial industry official who stated, 'The recent stablecoin craze is too heated. It needs to be calmed down,' adding that 'stablecoins and their underlying technologies at best can only complement the existing financial system, not serve as substitutes. Claims that virtual assets and their systems will be the future of the financial industry are absurd.'
With the market's attention focused on stablecoins, a major fraud case related to stablecoins has also occurred. According to local media in China, an online investment platform named 'DGCX Xinkangjia' that posed as a stablecoin business froze all withdrawal methods at the end of June, leaving investors unable to retrieve their funds. As a result, more than 2 million people are estimated to have suffered losses totaling 13 billion yuan (approximately 2.5 trillion won). Four members of the group were arrested by the Hong Kong police, while one leader has fled.