March 27, 2024
China's Crypto Policy Reevaluation: Is Beijing Warming Up to Digital Assets?
Policy & Regulation

China’s Crypto Policy Reevaluation: Is Beijing Warming Up to Digital Assets?

As one of the country’s neighbouring nations adopts a more favourable approach toward blockchain generally, China may be considering a crypto return.

In a recently released analysis, blockchain analytics company Chainalysis discovered that despite only having 0.5% of mainland China’s population, recent crypto volume transfers to Hong Kong had been comparable to those made there over the last year.

“Hong Kong is an extremely active crypto market by raw transaction volume, with an estimated $64.0 billion in crypto received between July 2022 and June 2023,” wrote Chainalysis in an instance from its 2023 Geography of Cryptocurrency Report.

China, in contrast, got $86.4 billion in transactions within the same time.

Hong Kong is now aggressively encouraging Web3 development, whereas China implemented many prohibitions on all things cryptocurrency in 2021. In June, the area developed a regulatory framework that holds comparable crypto and TradFi businesses to the same standards, and in August, it granted HashKey its first retail crypto exchange license.

The trend “may signal that the Chinese government is reversing course on digital assets, or at least becoming more open to crypto initiatives,” stated Chainalysis.

The majority of regional activity is still “over the counter” (OTC), a private setting created for substantial institutional transactions that don’t impact the market.

China, however, outperformed Hong Kong in terms of “retail” volume (transfers under $10,000 in value), with respective percentages of 8.5% and 4%. Between $10,000 and $1 million, China had a substantially higher percentage of “professional” size transfers (34.8%) than Hong Kong (25.1%).

It’s interesting to note that the great majority of cryptocurrency activity in China (73.5%) still comes via centralized exchanges, but the majority in Hong Kong (68.3%) is associated with DeFi.

Despite having halted activity, Chengyi Ong, Head of APAC Policy at Chainalysis, highlighted that China’s strategy of outlawing all cryptocurrency transactions eventually failed.

“Crypto activity remains substantial, which suggests that the bans have either been ineffective or loosely enforced,” she concluded. “Instead of broad-based bans, clear regulatory frameworks would better protect end-users by enabling them to engage with digital assets more safely.”

8.8% of all crypto transactions during the investigated time were in Eastern Asia.

Image: Freepik

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