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| By Bob Czeschin |
My colleague Beth Canova recently revealed that the Regulation Revolution was catching.
Countries across the globe have woken up to the reality that crypto is here to stay. And that it needs common-sense regulation to thrive.
Many of their first attempts to create clear, accessible regulations have been focused on stablecoins.
Here in the U.S., the Genius Act — which clarifies and codifies the legal and regulatory status of stablecoins — is meandering leisurely through the halls of Congress.
But recently, Hong Kong quietly stole the show.
It enacted its own Stablecoins Ordinance, which takes effect in August.
This regulation does many of the same things as the Genius Act.
For example, it …
- establishes reserve requirements,
- creates anti-money laundering controls,
- sets audit and disclosure requirements
And more.
On the surface, there’s not much to this story.
Hong Kong is the world’s third most important financial center (after New York and London).
So, bringing regulatory clarity to stablecoins — the fastest growing segment of the crypto universe — makes sense. Especially as the U.S. and EU kick their regulatory push into overdrive.
Afterall, clear and supportive regulations could open the floodgates and elevate that marketplace even further.
But underneath, there’s a more severe impact to the Stablecoins Ordinance.
Hong Kong Regulation Will Weaken USD Dominance
Here’s the secret that isn’t obvious — a flourishing Hong Kong stablecoin industry is set to erode the U.S. dollar’s global dominance.
And it’s a two-pronged attack.
First, the Hong Kong dollar is uniquely positioned to eat into the dollar’s almost-monopoly as a stablecoin peg.
More than two hundred fiat stablecoins are in circulation right now. They have a collective market cap of over $259 billion.
And of these, 99% are pegged to the U.S. dollar.
However, the Hong Kong dollar has itself been pegged (7.8 to 1.0) to the U.S. dollar since 1983.
This arguably makes it the most successful fixed exchange-rate regime in monetary history.
Certainly, it has already endured longer than the post-World War II Bretton-Woods agreement.
In fact, it has lasted longer than even the classical 19th-century gold standard!
Such a rich heritage and history would give a Hong Kong Dollar stablecoin a degree of monetary “street cred” no other could equal.
Especially in competition with U.S. dollar-pegged stablecoins.
And make no mistake, there is a substantial market here. One that is ready for a stablecoin that features USD-stability … without the U.S. dollars.
Particularly among countries on less than friendly terms with the U.S. (More on this in a bit.)
Sure, casual observers may point to the spectacular recent growth of stablecoins and claim it is bullish for ongoing dollar dominance.
That’s because stablecoins like Tether (USDT) and USD Coin (USDC) have emerged as major new buyers of U.S. Treasurys (to back their growing stablecoin mintage).
Trouble is, that’s only half the story.
What the burgeoning growth of fiat stablecoins actually signals … is a growing demand for any strong peg-able currencies to back them.
USD, as the global currency, was the natural one to default to.
But it isn’t the only option.
And one key strength of the Hong Kong Ordinance is that it leaves room for non-HK dollar-pegged stablecoins.
That brings me to the second way this regulation challenges USD dominance: It opens the door for long-stalled global de-dollarization trends.
International discontent over the dollar as a reserve currency is nothing new.
When complaints came in 50 years ago, then-U.S. Treasury Secretary John Connally famously snapped: “The dollar is our currency. But it’s your problem!”
His message was simple: Get used to it.
Because there was nothing that could take the dollar’s place.
But fast forward to the present era, and that may no longer be the case.
The latest anti-dollarization wave began when the Biden administration froze Russia’s dollar deposits (both inside and outside the U.S.) to punish Moscow for invading Ukraine.
Later, the BRICS nations — Brazil, Russia, India, China and South Africa — made headlines when they called for a new currency that American presidents couldn’t interfere with.
Last year, they agreed their new currency would be called the Unit.
It would be backed 40% by gold and 60% by the currencies of the BRICS nations themselves.
But most notably is that their agreement included the building of a BRICS blockchain-based payment system.
Sound familiar?
It should.
Because what the BRICS nations are really suggesting with that last provision is a stablecoin payment system.
Only, instead of pegged to the U.S. dollar, it would be supported by a basket of assets.
Which is just the sort of thing Hong Kong’s new Ordinance might have envisioned.
And for the Unit stablecoin to be registered and issued in the world’s third largest financial capital?
Well, that would only further enhance its cachet and acceptance.
To put it simply …
The Unit stablecoin could help revolutionize financial systems across Asia and promote trade and economic integration.
Don’t forget, after all, that the “C” in BRICS stands for China.
This founding member of the bloc is still caught up in President Trump’s tariff war …
Which practically guarantees a serious interest in sponsoring de-dollarization pathways wherever possible.
Indeed, Hong Kong’s Financial Secretary, Paul Chan, recently said as much when he linked stablecoins to de-dollarization and regional trade in local currencies.
3 Ways to Play the Stablecoin Shift
Stablecoins have been a tour de force in crypto ever since 2021. Just look at the chart below, which shows crypto transaction volume.
The dark grey dominating the middle? Those are the stablecoin transactions.
And roughly 80% of those take place outside North America — with Asia leading the charge.
So, Hong Kong is perfectly situated to benefit from and extend this growth.
And as stablecoin adoption grows, Ethereum (ETH, “A-”) appears poised to benefit most. That’s because it hosts the majority of stablecoin activity (and real-world assets).
In fact, this segment generates roughly 30% of all Ethereum’s network fees.
In addition, U.S. dollar dominance is bound to shrink should new, wannabe reserve currencies — empowered by surging stablecoin growth — secure their place in the sun.
For financial markets, this will be a seismic shift.
And changes this big are always at least a little scary. Investors will likely look for safe-haven opportunities — like Bitcoin (BTC, “A-”) and gold — to outperform.
That gives you three ways to play the stablecoin shift:
- ETH, which stands to benefit from stablecoin growth
- BTC, which will likely act as a safe harbor for investors fleeing uncertainty and
- PAX Gold (PAXG), a leading stablecoin pegged to gold. This makes the other safe-haven asset easier to access and transport.
A Bonus Stablecoin Play
While stablecoins themselves don’t increase in value, there is a way you can use them to target impressive returns.
By liquidity providing.
In the world of DeFi, platforms need your liquidity to function. And in return for your liquidity, they give you a cut of their trading fees.
How much?
Well, our DeFi expert Marija Matić has been able to target yields of 12.4% … 13.8% … and 15.4%.
And, since your capital is in stablecoins, that’s all with minimal risk to your principal.
If you’re willing to increase your risk exposure, Marija has also been able to target even greater rewards — of 361% … 912% … and even up to 1,168% — by lending both a variable-price coin and a stablecoin.
Overall, she has managed an average APY of 184% across her positions!
That’s …
- 30x greater than a 10-year Treasury …
- 145x greater than the average corporate dividend …
- And over 18,000x greater than some savings accounts.
To learn the details of this strategy, I suggest you watch Marija’s latest High-Yield Summit now.
Best,
Bob Czeschin
