Recent developments in the crypto sector in Hong Kong are seen as a potential boost for cryptocurrency activity in East Asia, a region that has been constrained by China’s ban on crypto trading since 2019.
Between July 2022 and June 2023, crypto transactions in East Asia represented just 8.8% of the global total, according to a report from Chainalysis on October 2, making it the fifth most active crypto market worldwide. Nevertheless, Chainalysis believes that recent initiatives in Hong Kong have the potential to increase this percentage.
The report concluded that Hong Kong’s recent moves could help increase this number as the region has suffered from a China-wide ban on trading activities since 2019.
Chainalysis data shows that East Asia’s share of crypto transaction value declined from about 30% in 2019 to less than 10% by the second quarter of 2022, following several crypto-related bans in China. However, Chainalysis notes that there is growing optimism in Hong Kong, despite its smaller population, which is already considered an “extremely active crypto market” in terms of raw transaction volume.
During the period from July 2022 to June 2023, the market received an estimated $64 billion in crypto, compared to $86.4 billion in China, despite having a population that is only 0.5% the size of the mainland.
Merton Lam of CryptoHK, an over-the-counter digital asset trading center in Hong Kong, mentioned in comments to Chainalysis that cryptocurrencies are becoming an integral part of the investment portfolios of many banks, private equity firms, and high-net-worth individuals in the region.
Additionally, Chinese state-owned entities have recently launched investment funds focused on cryptocurrencies.
However, it’s worth noting that Dave Chapman of digital asset platform OSL Digital Securities cautioned that while digital assets are gaining traction in East Asia, it’s premature to conclude that Hong Kong’s crypto initiatives signify full acceptance of cryptocurrencies by China. He suggested that Hong Kong’s promotion as a potential crypto hub may be more about exploring digital assets without necessarily altering mainland policies.
Markus Thielen, Head of Research and Strategy at Matrixport, emphasized that Hong Kong is aiming to attract the crypto asset management industry, a sector that has been somewhat overlooked by other states. Thielen said:
“Crucially, there is a genuine interest to attract the crypto asset management industry which has so far been a missing piece of the puzzle as most crypto firms tend to be labeled as service providers, instead of being the end-user of crypto.”
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