‘Extreme fear’: bitcoin plunge hammers Hong Kong-listed firms tied to digital assets
News Summary
The cryptocurrency market continues its deep sell-off, with Bitcoin plunging and erasing share price gains made by some Hong Kong-listed firms that launched digital asset initiatives this year. Bitcoin at one point on Tuesday dropped below US$90,000, more than 4 per cent lower than at the start of 2025, after hitting multiple all-time highs this year.
Background
Bitcoin, as the world's largest cryptocurrency, had hit multiple all-time highs in 2025, reaching a peak of US$126,000, but has recently experienced a significant plunge. This downturn has pushed Bitcoin's price below US$90,000, marking a decline from the start of the year and erasing many earlier gains. The market sell-off has been exacerbated by a "historical leverage flush" in the crypto market since October 2025, which wiped out US$19 billion and liquidated over a million traders who had made leveraged bets.
In-Depth AI Insights
Is Hong Kong's strategic positioning in digital assets facing a severe test? Hong Kong has been striving to become a global hub for digital assets and Web3, attracting cryptocurrency companies and investors. The recent Bitcoin plunge, impacting the share prices of associated companies, undoubtedly represents a real-world test for this strategy. If market fear persists, it could lead to: - Slowdown in new investment: Institutional and retail investors may pause or reduce their commitment to Hong Kong's digital asset market due to risk-off sentiment. - Increased regulatory pressure: To protect investors, Hong Kong regulators might tighten supervision over digital asset trading and related businesses, potentially affecting the industry's growth rate and innovation space. - Talent outflow: A market downturn could lead to layoffs or bankruptcies among relevant companies, resulting in a loss of talent in the digital asset sector. What risks does the "extreme fear" in the cryptocurrency market pose to global financial stability? Steven Nie, associate director at Daiwa Capital Markets, indicates the market is in "extreme fear." While the cryptocurrency market is somewhat distinct from traditional finance, its growing market capitalization and correlation with other asset classes cannot be ignored. The spread of this fear could lead to: - Reversal of wealth effect: Significant wealth evaporation could impact the consumption and investment appetite of high-net-worth investors and institutions, subsequently having a negative effect on broader economic activity. - Contagion risk: If large financial institutions or publicly listed companies suffer substantial losses due to their crypto exposure, it could trigger a chain reaction, especially in highly leveraged segments. - Regulatory intervention: Globally, governments and central banks may intensify scrutiny and intervention in the cryptocurrency market under the guise of maintaining financial stability. This could include stricter KYC/AML requirements, trading restrictions, or even outright bans on certain types of activities. What are the potential implications of the Trump administration's stance on the cryptocurrency market? Although the news does not directly mention the Trump administration, in 2025, President Trump's policy positions hold significant sway over global financial markets. His administration typically favors deregulation and fostering innovation, yet it may also adopt firm stances on national security and financial stability. For the cryptocurrency market, potential implications could include: - Regulatory uncertainty: While generally inclined towards innovation, given the volatility of cryptocurrencies and their increasing importance in the global financial system, the Trump administration may face challenges in balancing innovation with risk, leading to an uncertain regulatory framework. - Competitive regulatory environment: The U.S. may seek to maintain a leading position in digital assets, which could prompt it to adopt regulatory strategies different from other jurisdictions, including Hong Kong, thereby influencing global cryptocurrency market liquidity and capital flows. - Macroeconomic policy impact: The Trump administration's fiscal and monetary policies (e.g., intervention with the Federal Reserve, trade policies) could indirectly affect the performance of risk assets like Bitcoin by influencing the U.S. dollar's trajectory and global risk appetite.