Hong Kong and Germany Explore Bitcoin as a Reserve Asset

Highlights:

• Hong Kong lawmaker suggests including Bitcoin in the city’s Exchange Fund.
• Bitcoin could enhance financial stability in Hong Kong amidst global market shifts.
• An ex-German finance minister advocates for the ECB to hold Bitcoin in its reserves.

Wu Jiezhuang, a Hong Kong Legislative Council member and chairman of the Web3 Virtual Asset Development Subcommittee, stressed the importance of exploring strategies for financial security. He highlighted the challenges posed by U.S. disruptions in both Bitcoin and traditional asset markets. 

In a recent interview, Jiezhuang proposed using the “one country, two systems” principle to include Bitcoin in the foreign exchange fund. This could help the country use its Bitcoin holdings more effectively. Foreign exchange reserves are assets held by central banks to help manage their country’s currency value.

Jiezhuang discussed whether Bitcoin could help the Special Administrative Region (SAR) with its fiscal deficit. He said Bitcoin could grow assets, but the government would need to hold a large amount for it to have a noticeable effect. Jiezhuang pointed out that the current government deficit exceeds 100 billion yuan ($13.7 billion). He mentioned that small Bitcoin holdings would not significantly reduce the deficit. Instead, Bitcoin’s role would focus on preserving value rather than increasing it.

Hong Kong lawmaker have proposed incorporating Bitcoin into Hong Kong’s fiscal reserves and considering using the Exchange Fund to continue purchasing and holding it for a long time to stimulate the development of the cryptocurrency industry in Hong Kong, attract funds and…

— Wu Blockchain (@WuBlockchain) December 30, 2024

BTC Reserve Proposal Mirrors Global Trends, but Security Concerns Persist

Jiezhuang’s suggestion follows global trends. After Donald Trump’s election win, several U.S. states proposed holding 10% of their reserves in Bitcoin. Wyoming Senator Cynthia Lummis confirmed plans to create a Bitcoin reserve strategy.

Jiezhuang mentioned that a few U.S. states allow Bitcoin in their reserve allocations. This strategy helps them to diversify their portfolios. He pointed out that Bitcoin’s market capitalization is around $2 trillion. This is much smaller than the $20 trillion worth of gold reserves. Despite its growing popularity, the market remains limited. 

DW Media reported that China owns approximately 190,000 Bitcoins, ranking second after the U.S. The United States government holds 210,000 BTC. At $94,000 per Bitcoin, it’s worth around $18 billion (HK$140 billion). Market analysts suggest that the city could convert these holdings into ETFs listed in Hong Kong. Currently, the Hong Kong Stock Exchange offers 12 crypto ETFs with a total market value of about HK$7.4 billion.

However, Jiezhuang cautioned about Bitcoin’s security risks despite its resistance to hacking. He said speculative trading and blockchain’s openness could cause market shifts and value drops. Jiezhuang advised governments to invest only a small percentage of their financial assets in Bitcoin.

Former German Finance Minister Advocates for Bitcoin Reserves

Former German Finance Minister Christian Lindner suggested that the European Central Bank (ECB) and the Bundesbank consider adding Bitcoin to their reserves. This follows a similar request from a European MP last week. Lindner made this statement to the German Press Agency in Berlin.

Lindner pointed out that the U.S. is adopting crypto-friendly policies under Trump. He criticized German political leaders for ignoring the global shift to digital currencies. Lindner said, “I don’t hear anything about this in the central debates of the German Bundestag.”

He stated that the U.S. aims to lead in both USD and crypto. Lindner emphasized that Germany and Europe must not fall behind. He said Frankfurt should explore whether crypto assets could be included in central bank reserves.

BITCOIN IN EUROPEAN CENTRAL BANK RESERVES?

Former German Finance Minister Christian Lindner thinks it’s time for the ECB and German Federal Bank to consider Bitcoin for their reserves.

He sees it as a way to boost resilience.

Could this mean crypto is edging closer to… pic.twitter.com/atUSivLJbG

— IBC Group Official (@ibcgroupio) December 30, 2024