The evolution and technological innovation of digital assets have become a key arena in global competition. Observing the emphasis and progress made by various nations, it is evident that investment in this domain domestically requires acceleration. Currently, leveraging the openness, pilot programs, and collaborative mechanisms between Shanghai and Hong Kong is crucial.
Digital transformation and the construction of a digital economy are advancing rapidly, with digital asset investment playing an indispensable role. The regulated development and technological advancements in digital assets are now central to international competitiveness. For instance, the European Union Council passed the Markets in Crypto Assets Regulation (MiCA) bill in May 2023, which is set to take effect as early as May 2024. Similarly, the United States highlighted in a September 2022 policy document that digital asset development offers an opportunity to maintain technological leadership and shape global financial markets.
What Are Digital Assets?
The term "digital assets" is broad and often context-dependent. In a general sense, it refers to economically valuable assets existing in electronic form, similar to data assets. More narrowly, it denotes assets created using blockchain technology or through the tokenization of existing assets, often referred to as crypto assets. This article focuses on the latter category, which can be divided into two types:
- Native Digital Assets: These include cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs).
- Tokenized Real-World Assets: These encompass both fungible and non-fungible tokens (NFTs), such as digital securities, commodities, and artwork.
The exploration of digital currencies in Europe and the U.S. began as early as the 1980s, following the emergence of asymmetric encryption technology. However, the first wave of efforts largely failed by 1999. The second wave succeeded in 2008 with the publication of the Bitcoin whitepaper. The term "currency" was used because cryptographic pioneers aimed to create inflation-free money. Bitcoin’s launch sparked diverse reactions: some countries banned it outright, others adopted it as legal tender, while most allowed its existence under regulation or adopted a laissez-faire approach.
Bitcoin’s true value lies in its integration of multiple technologies. Initially termed a "proof-of-work chain," the term "blockchain" gained popularity after appearing on the BitcoinTalk forum in July 2010.
Between 2010 and 2017, Bitcoin’s strengths and weaknesses became apparent. Its reliance on asymmetric encryption and unique issuance mechanisms resulted in slow transaction speeds and high costs, making it impractical as a widespread currency. However, its capped supply of 21 million coins and algorithmically controlled issuance schedule positioned it as a store of value during periods of fiat currency depreciation. Prominent figures like Ray Dalio, founder of Bridgewater Associates, publicly acknowledged Bitcoin’s value preservation properties, comparing it to gold despite its lack of intrinsic value.
As Bitcoin’s limitations became evident, alternative cryptocurrencies and stablecoins with stronger monetary attributes emerged. The proliferation of cryptocurrencies also pressured central banks to explore CBDCs, which offer advantages over traditional fiat currencies.
While cryptocurrencies remain the dominant form of digital assets, tokenized real-world assets are gaining traction. For example, the total market capitalization of the top 100 decentralized finance (DeFi) tokens peaked at over $170 billion in November 2021 but fell to around $48.5 billion by June 2023. This volatility underscores the market’s unpredictability and rapid changes.
Beyond direct investment in cryptocurrencies and tokens, digital asset investment also includes equity stakes in privately held technology firms or shares of publicly traded companies in the blockchain space.
Analyzing Overseas Digital Asset Investment Data
Bitcoin’s first real-world transaction occurred in May 2010, when 10,000 BTC were exchanged for two pizzas worth $25, establishing an initial "exchange rate" of $0.0025 per BTC. Since then, Bitcoin has experienced dramatic price fluctuations.
Institutional investment in digital assets began with crypto funds. According to Crypto Fund Research, the first such fund was established in 2010. Canada’s 3iQ, one of the largest digital asset investment firms, was founded in 2012, followed by U.S.-based Grayscale Investments in 2013. Today, there are approximately 800 crypto funds worldwide, including hedge and venture capital funds.
Bitcoin’s rise attracted venture capital to related startups. In 2013, Silicon Valley firm A16z made its first crypto investment in OpenCoin, a San Francisco-based digital payment company. Similarly, Hong Kong-registered Seedcoin invested in DealCoin, a Bitcoin exchange and custody platform.
The same year saw the emergence of initial coin offerings (ICOs), a novel fundraising method. Mastercoin raised 5,000 BTC (worth roughly $500,000 at the time) in July 2013, followed by NXT (Nextcoin), which raised $16,800 later that year. These early IOCs yielded high returns for investors.
Unfortunately, no global authority comprehensively tracks startup funding in the digital asset space. Synthesizing data from multiple sources reveals that venture capital flowing into cryptocurrencies, blockchain, and Web3.0 startups has grown rapidly on average but remains highly volatile, closely correlated with crypto market cycles.
Traditional venture capital has been the primary funding source, generally surpassing ICOs. However, ICO fundraising surged in 2017 and 2018, driven by Ethereum’s ERC-20 token standard and simpler exit mechanisms for short-term traders. As ICO profitability waned, interest shifted back to traditional VC channels.
VC investments are often considered "smart money" for their role in predicting and guiding industry directions. Over the past decade, funding has trended upward as the industry continuously refines its focus and explores new technological pathways. Blockchain technology itself is not monolithic but an integration of distributed storage, peer-to-peer transmission, consensus mechanisms, and encryption algorithms, evolving through versions 1.0, 2.0, and 3.0.
Beyond venture funding, the long-term viability of the digital asset industry depends on adoption by institutional investors. As the sector expanded, organizations like Fidelity began conducting annual surveys of institutional engagement. Fidelity’s data shows a steady increase in the proportion of institutions investing in digital assets, rising from 22% in 2019 to 59% in 2022. Conservatively, over half of global institutions had exposure to digital assets by 2022.
Key advantages cited by institutions include low correlation with other assets and high potential returns. However, the "low correlation" argument has weakened over time as Bitcoin’s price movements increasingly align with traditional inflation hedges like gold and equities. Despite Bitcoin’s price volatility—from $0.0025 in 2010 to an all-time high of $68,790 in November 2021—43% of respondents in Fidelity’s 2022 survey still cited high returns as a key advantage.
Major barriers to institutional adoption include price volatility and the lack of fundamental valuation metrics. While Ray Dalio famously noted Bitcoin’s lack of intrinsic value, fewer institutions now share this concern, suggesting growing acceptance of imputed value and the emergence of valuation frameworks.
Risks in Overseas Digital Asset Investments
Despite overall growth, digital asset investments remain high-risk due to their relative novelty. Notable cases of project failures and fraud include:
- Technical Vulnerabilities: High-profile hacks, such as the 2014 Mt. Gox breach and the 2021 Poly Network exploit, resulted in significant cryptocurrency losses.
- Market Mania and Fraud: The 2017–2018 ICO boom saw projects like The DAO raise $160 million before dissolving, while EOS raised $4.1 billion but failed to deliver. Venezuela’s state-backed Petro cryptocurrency also faced operational challenges.
Two典型案例 (typical cases) illustrate these risks:
The TerraUSD Collapse
Launched in 2020 by Terraform Labs, TerraUSD (UST) was a stablecoin pegged to the U.S. dollar via a mechanism involving its sister cryptocurrency, Luna. In May 2022, large-scale selling triggered a "death spiral": as UST’s price fell below $1, automated mechanisms converted UST to Luna, increasing Luna’s supply and depressing its price. This led to panic selling, collapsing both currencies within days and shaking market confidence in stablecoins.
The FTX Fraud
Founded in 2018 by MIT graduate Sam Bankman-Fried (SBF), FTX grew into the second-largest cryptocurrency exchange globally, valued at $32 billion by November 2022. However, reports of debt issues at FTX and its affiliated trading firm, Alameda Research, triggered a user trust crisis. FTX filed for bankruptcy on November 11, 2022, and several executives pleaded guilty to fraud charges.
Implications for Digital Asset Investment in China
Given the global trajectory of digital asset investment—marked by growth driven by regulation and innovation but fraught with risks—how should China respond?
Hong Kong, an early hub for cryptocurrency activity, established the Hong Kong Digital Asset Exchange (DAX) in 2017. However, its progress lagged behind competitors like Singapore, which recorded $100 billion in digital asset trading volume between July 2021 and July 2022, compared to Hong Kong’s $74 billion.
In October 2022, the Hong Kong government issued a policy宣言 (declaration) outlining its commitment to developing the virtual asset industry. By April 2023, DAX had opened a physical branch in Yau Ma Tei, enhancing accessibility for retail investors. In May, the Securities and Futures Commission announced that retail investors could trade cryptocurrencies like Bitcoin and Ethereum starting June 1. Hong Kong’s broader goal is to reestablish itself as a global financial center for digital asset innovation, leveraging synergies with mainland China, particularly Shanghai.
In mainland China, digital assets gained significant attention in 2013. By 2016, blockchain technology was officially emphasized in the "China Blockchain Technology and Application Development White Paper," which highlighted its potential to drive innovation across sectors like IoT, smart manufacturing, and digital asset trading.
Breakthroughs came in March 2021, when the 14th Five-Year Plan designated blockchain as a key industry under the "Digital China" initiative. In July 2022, Shanghai’s action plan for metaverse development proposed a digital asset trading sector within the Shanghai Data Exchange, launched in August with stringent listing standards, including a requirement for assets to have "clear economic value."
China has distinguished between blockchain technology and cryptocurrency since 2016: promoting the former while restricting speculation in the latter. This approach has supported technological advancement while mitigating risks associated with crypto investments.
To advance further, China should:
- Promote Education: Enhance public understanding of cryptocurrencies and blockchain, clarifying terms like "stablecoin" and "NFT" to avoid misconceptions.
- Leverage Hong Kong and Shanghai: Utilize Hong Kong’s openness to retail crypto investment and Shanghai’s NFT pilot programs (termed "digital collectibles").
- Study Global Regulations: Analyze international regulatory frameworks and market outcomes to inform policy design.
- Design a Tiered Market Structure: Develop a clear, systematic approach to accommodate diverse digital assets, including China’s digital yuan.
Specific recommendations include:
- Gradually allowing mainland investors to access Hong Kong’s crypto markets, similar to the Stock Connect program.
- Regulating Bitcoin similarly to gold, given its store-of-value characteristics.
- Permitting mining equipment and infrastructure firms to list on A-shares markets.
- Implementing investor准入 (access) rules, potentially limiting direct investment to funds initially.
- Enforcing rigorous disclosure requirements to protect investors.
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Frequently Asked Questions
What are digital assets?
Digital assets are economically valuable resources existing in electronic form, often leveraging blockchain technology. They include cryptocurrencies, stablecoins, CBDCs, and tokenized real-world assets like securities or artwork.
Why is regulatory clarity important for digital assets?
Clear regulations help mitigate risks such as fraud, market manipulation, and technical failures while fostering innovation and investor confidence. Policies must balance consumer protection with industry growth.
How can investors mitigate risks in digital asset investments?
Diversification, thorough due diligence, and understanding technological fundamentals are key. Long-term strategies and professional guidance can also help navigate volatility and regulatory changes.
What is the difference between cryptocurrencies and tokenized assets?
Cryptocurrencies are native digital assets like Bitcoin, whereas tokenized assets represent real-world holdings digitized on a blockchain. The latter may include equities, commodities, or art.
How does China’s approach to digital assets differ from other countries?
China promotes blockchain technology but restricts cryptocurrency trading to prevent speculation and systemic risks. This contrasts with more permissive regimes in places like the U.S. or EU.
What role do stablecoins play in the digital asset ecosystem?
Stablecoins aim to minimize volatility by pegging their value to stable assets like fiat currencies. They facilitate trading and payments but require robust collateral and transparency to avoid Terra-like collapses.