Rumors of virtual currency competition

This report is from CNBC’s The China Connection newsletter this week, delivering insights and analysis on the powerhouse of the world’s second-largest economy. You can subscribe here.

The AI ​​competition between the US and China begins over cryptocurrencies.

At least that’s what US President Donald Trump suggested after his meeting with Chinese President Xi Jinping last Thursday, a trade deal that has been closely watched around the world.

“I want to make cryptocurrencies great for America,” President Trump told CBS News. “Just like we are number one in AI, we are number one in cryptocurrencies. And I want to keep it that way.”

“We don’t want China or anyone else to take that away,” he said.

Regardless of whether Trump truly views China as a serious threat, his comments come as China sends new signals about its crypto ambitions. Beijing has banned domestic cryptocurrency trading since 2021, and Hong Kong, a special administrative region of China, maintains a control system that facilitates the development of digital assets.

On Monday, Hong Kong further eased its restrictions, allowing licensed crypto asset trading platforms to connect directly to global crypto exchanges and list new digital assets and Hong Kong-regulated stablecoins, no longer requiring a 12-month track record.

The announcement coincided with the Hong Kong government’s 10th FinTech Week, which kicked off just as the political and business landscape in South Korea began to take a dark turn.

Hong Kong was quick to follow Washington’s lead, allowing spot trading in exchange-traded funds (ETFs) last year, and went a step further by approving trading in Spot Ether ETFs nearly three months earlier than the United States.

Bitcoin is often likened to digital gold and remains the most recognized cryptocurrency. Ether, the other major digital currency on the Ethereum network, is used for both payments and “gas” in decentralized applications to pay for computations and execute smart contracts.

More than 60% of stablecoins (virtual currencies pegged to government-issued currencies) are deployed on the Ethereum network, Tomasz K. Stanczak, co-executive director of the Ethereum Foundation, said Sunday at the Digital Asset Forum held on the sidelines of Hong Kong’s FinTech Week.

Gavin Wang, chief investment officer at digital asset investment firm SNZ Holdings, which helped organize the forum, said nearly 70% of the audience of about 300 were from traditional finance.

Wang, who previously worked at UBS, said this is in contrast to when events like this used to attract more software developers. The forum also announced the opening of the Ethereum Hong Kong Hub, a co-working space to foster related startups, reflecting Hong Kong’s growing influence as Asia’s crypto gateway.

Major industry players are also paying attention. Consensus, one of the world’s largest crypto conferences held in North America, expanded to Hong Kong for the first time this year, with plans to return in 2026.

Still, digital assets are still in a relatively nascent stage compared to traditional markets. Although the total value of cryptocurrencies has not yet exceeded $4.5 trillion, the global stock market is still much larger at $101.52 trillion.

Bitcoin has tumbled in recent weeks, at one point falling below $100,000 for the first time since late June, amid concerns about escalating U.S.-China trade tensions and buoyant valuations for AI stocks.

“I think it’s more or less the same group of investors who are switching to AI and cryptocurrencies,” said Jason Huang, founding partner at NextGen Digital Ventures (NDV), an Asia-based fund that invests in cryptocurrencies and related stocks. “Once AI calms down a bit, I think cryptocurrencies will come back.”

Hwang’s $100 million fund soared 375.5% in the two years ending March 2025, outperforming Bitcoin by more than 60% during that period. And we are currently launching our second fund. Many of the investors are wealthy Chinese, he said, adding that subscriptions are increasing despite the recent drop in stock prices.

Huang said that despite last month being the single largest liquidation day for crypto trading, even surpassing the infamous collapse of the FTX exchange, his funds declined by single digits.

The next stage of competition may not be about the token itself, but about control. Governments are increasingly keen to control markets through stablecoins backed by their own fiat currencies.

Much of the recent excitement around digital assets in Hong Kong stems from the city’s entry into stablecoins this year following the US Genius Act, which aimed to support stablecoins pegged to the dollar. This moves the competition between the US dollar and the Chinese yuan into the digital age.

“Both companies are working to expand the use of their own currencies to build their respective global user ecosystems,” said Winston Marr, an adjunct professor at New York University School of Law.

However, he noted that it will not be easy as the Chinese government has not been able to persuade individuals to adopt the digital yuan on a large scale. The digital yuan is a digital currency issued by China’s central bank that is intended to replace some cash transactions and strengthen oversight of the financial system.

China has been trying to popularize a digital version of its renminbi currency in recent years, but it has not yet become mainstream.

“We may see a similar experience once USD stablecoins start appearing,” Ma said.

The US dollar accounted for just under half of global payments tracked by international financial messaging service SWIFT in September, while the Chinese yuan moved up one place to fifth place with a share of 3.17%.

Last week, while promoting a digital yuan, China’s central bank governor Ban Gongsheng took a more conservative view of stablecoins than most expected, reaffirming Beijing’s longstanding restrictions on speculative trading in cryptocurrencies.

Still, Bitcoin blockchain data showed that China remains a major player, ranking third in global Bitcoin mining activity after the United States and Russia.

This is not a statistic that President Trump is likely to overlook. Forbes estimates that the US president himself owns around $870 million worth of Bitcoin. This is one of the world’s largest privately held assets.

—CNBC’s Anniek Bao contributed to this report.

Former US Secretary of Commerce Carlos Gutierrez said both the US and China got what they wanted from President Trump and Mr Xi’s meeting in South Korea. He added that markets are likely to welcome signs that the two countries are giving each other reason to strengthen ties.

James Kim, president and CEO of the American Chamber of Commerce in Korea, said the U.S.-China relationship is particularly important to South Korea. He added that he was satisfied with the outcome of trade talks between the US government and Seoul.

Xiaomeng Lu, director of geotechnology at Eurasia Group, said Nvidia has likely made more progress with the U.S. government than with China amid ongoing tensions over semiconductor export controls.

The US and China agree to a one-year trade ceasefire. Once the latest US-China trade deal is finalized, tariffs are expected to remain low and there is little chance of major disruption to rare earth trade over the next 12 months.

Nvidia in China. The company remains largely locked out of the $50 billion market, with CEO Jensen Huang admitting Friday that “China doesn’t want H20 or chips made in the United States.”

Factory activity in China is sluggish. The official Purchasing Managers’ Business Index and Private Sector Index both showed manufacturing activity fell in October from September amid U.S. trade tensions.

China’s market rose 0.46%, defying broader regional declines as investors exited AI stocks.

While the Hang Seng Index was little changed, the CSI 300 has risen nearly 18% so far this year.

The offshore yuan traded at 7.1307 yuan against the dollar.

— Li Yingshan

November 5th-10th: China International Import Expo in Shanghai

November 6th to 9th: China’s “Six Little Dragons” AI startups will hold a roundtable during the World Internet Conference in Wuzhen

November 7: October import and export

November 9: October CPI, PPI