Hong Kong Set to Become East Asian Crypto Powerhouse – is China Warming Up to Crypto?

In a recently released Chainalysis report, the blockchain analysis firm shared some interesting insight regarding the state of the East Asian crypto markets, particularly in Hong Kong. While the market in Eastern Asia only accounts for a small 9% of the global crypto activity, the local DeFi market is relatively active compared to other markets of its size.

The report notes that activity has declined in the last few years, largely due to crypto bans by the Chinese Government. However, as China and Hong Kong become more intertwined the growing number of crypto-friendly projects in the island state raise hopes there may be a shift in policy by the Chinese Communist Party.

Chainalysis stated in the report:

Hong Kong Has Emerged as an Important Market

Relative to its size, accounting for only 0.5% of the population of mainland China, Hong Kong has a very high volume of transactions received. From July 2022 to June 2023, Hong Kong received US $64.0 billion ($100 billion) compared to China’s US $86.4 billion (135.6 billion).

Hong Kong’s active OTC (over-the-counter) market, which serves institutional investors and high-net-worth individuals with confidential large-scale transactions, significantly shapes its trading dynamics. This preference for OTC activity is evident in Hong Kong’s transaction volume distribution, as shown in the chart, distinguishing it from regional peers and the global average.

Hong Kong Investors Have Appetite for Crypto

Despite the Chinese Government officially banning Bitcoin (BTC) mining in recent years and making nearly all crypto assets illegal, it has not stopped the popularity of crypto. As Hong Kong has a special status as a Special Administrative Region of China, it has more freedom when it comes to policy-making. The OTC volumes in Hong Kong also highlight that people in the region want to make crypto part of their portfolio.

Hong Kong-based Merton Lam of CryptoHK, told Chainalysis, “We work with many investment banks, private equity firms, and high net worth individuals. For them, cryptocurrency is part of their investment portfolio.” He revealed Bitcoin and Ethereum (ETH) are the most requested assets though some are increasingly into different altcoins.

Crypto is Here to Stay

Executive Director of digital asset platform OSL Digital Securities, Dave Chapman, continued along these lines saying crypto was not going anywhere.

Chapman also explained that Chinese policy is different from Hong Kong’s policy. The open approach does not necessarily translate to the same policy line on the mainland. The report highlighted another aspect in all of this, which is the possible Chinese efforts to undermine the U.S. Dollar and U.S.-led sanctions. Chainalysis assumes that this is one of the main reasons for a Chinese CBDC.