Hong Kong, a territory of China which has some autonomy, has been plunged into chaos from mass peaceful protests which have now turned into riots. Apparently, varying levels of civil unrest are occurring in 11 different parts of Hong Kong, covering the full spectrum from worker strikes, traffic and public transportation disruptions, tear gas being fired at protesters, protestors throwing objects at police and pro-government civilians, and even a police station was burned down. The protests in Hong Kong may be fueling buying pressure in the Bitcoin market, as will be explained in this article.
— SCMP News (@SCMPNews) August 5, 2019
Hong Kong extradition bill fears fueling protests
Before explaining how the protests in Hong Kong could impact the Bitcoin market, it is important to understand why the protests are happening in the first place.
Hong Kong was originally a colony of the United Kingdom, until 1997 when Hong Kong was transferred to the Chinese government. Hong Kong is considered a special administrative region, meaning the government and economic systems are different than the rest of China.
However, this relative autonomy is now being challenged by the Hong Kong Extradition Bill, which would facilitate the deportation of Hong Kong citizens to mainland China. This is different than the current law which has been in place until now, where Hong Kong citizens who commit crimes are imprisoned in Hong Kong only.
The Hong Kong Extradition Bill has led to fears that Hong Kong’s relative sovereignty will be eroded to the point that laws in Hong Kong are the same as in mainland China. Further, Hong Kong citizens fear being deported to mainland China for trial since the laws are different and apparently harsher.
The protests started in March and April, and by June they escalated with up to 1 million people marching through the streets. This caused the Hong Kong government to suspend the extradition bill on 15 June, although the bill was not outright withdrawn like protestor’s demanded. This left the possibility that the bill could be approved once the protests halted, so the protests have continued to prevent that.
The protests have now intensified into violence due to the arrest of over 420 protestors, which has led to protestors demanding the release of everyone who has been arrested during the protests. Further, over 230 protestors have been injured, which is leading to a feedback loop of increasing violence.
Tragically, 5 Hong Kong citizens have committed suicide out of fear of the extradition bill, revealing how these protests to maintain Hong Kong’s autonomy and legal system is a life and death battle for some. Indeed, now there is even speculation that the Chinese military may move in to stop the protests, sparking fears of a Tiananmen Square Massacre redux.
Capital flight as financial save haven status in question
Before these protests, Hong Kong was considered a safe haven, where wealthy people could store their money and keep it out of the reach of the Chinese government. However, there is now fear that its legal system will be merged with the mainland China legal system if the extradition bill passes, and this would compromise Hong Kong’s safe-haven status. As Chen Zhiwu, Professor of Finance at the University of Hong Kong, says: “A number of mainlanders who live in Hong Kong told me they will emigrate if the law goes through, not only because they feel less secure about property rights but also about their personal safety.”
The result of these fears is capital flight. Marc Geary, a Managing Director at the wealth management service Major Domus says: “We have seen a trend to offshoring assets in the last few years, and the recent protests on extradition legislation are another catalyst underpinning this”. For example, during the protests, Geary has been asked to sell commercial real-estate in Hong Kong and move the proceeds to Australia.
Bitcoin’s fundamental characteristics make it perfect for those who are trying to get their money out of Hong Kong before the extradition bill passes, or before a military crackdown. This is because Bitcoin can be sent anywhere in the world instantly, is cryptographically secure, is pseudo-anonymous and requires no identification information, and can be made more anonymous if a VPN or Tor is used. Therefore, Hong Kong citizens who are trying to get their money out of Hong Kong can send Bitcoin instantly and securely out of the country, and this is far safer than using fiat payment methods which are slow, can be frozen or reversed, and require identification information.
Further, the economic disruption in Hong Kong due to the protests, and the potential for even more disruption and chaos if the military becomes involved, is causing people to sell off the Hong Kong Dollar (HKD). Therefore, Bitcoin is a good option for Hong Kong citizens who went to preserve their money, instead of losing money due to HKD inflation.
— Kyle Bass (@Jkylebass) August 5, 2019
Simultaneously, the Hong Kong stock market is quickly dropping as the protests intensify, with the Hang Seng Index (HSI) dropping from 28,300 points to 26,200 points in a week. It can be theorized that when the stock market is dropping a fraction of investors buy Bitcoin in order to protect their money, instead of losing money on the stock market.
Some of this capital flight may be happening via Bitcoin, which would apply upward pressure to the Bitcoin market. Also, devaluation of the HKD and the stock market in Hong Kong may be causing people to move their money into Bitcoin as a safe haven.
Therefore, it will be important to monitor the news in Hong Kong, since these protests may be impacting the Bitcoin market. Indeed, Bitcoin has rallied from $10,000 to $12,000 during the past week as protests have intensified, although to be clear, the Hong Kong protests are only one factor in this week’s Bitcoin rally.
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