The blockchain analytics firm suggests that recent advancements in the cryptocurrency industry in Hong Kong could boost the East Asian region’s crypto activity, which has stagnated since China banned crypto trading activities in 2019.
According to Chainalysis’s report on Oct. 2, the East Asian region accounted for only 8.8% of the world’s cryptocurrency value between July 2022 and June 2023, ranking it as the fifth most active crypto market. Chainalysis proposes that recent moves in Hong Kong could reverse this trend.
“A potential tailwind for East Asia comes from Hong Kong, where several crypto initiatives and industry-friendly regulations launched over the past year have fostered bubbling optimism.”
In 2019, East Asia had approximately 30% of the global crypto transaction value, but by the second quarter of 2022, this percentage had dropped to less than 10% due to China’s implementation of a series of crypto-related bans.
However, despite the decline in East Asia’s crypto activity, Chainalysis observed a “bubbling optimism” in Hong Kong. Despite having a smaller population compared to other Asian countries, Hong Kong is already a “highly active” crypto market in terms of transaction volume. Hong Kong received an estimated $64 billion in crypto between July 2022 and June 2023, which is only slightly less than the $86.4 billion received by China, despite Hong Kong having only 0.5% of China’s population.
According to Merton Lam of Crypto HK, an over-the-counter digital asset trading center in Hong Kong, cryptocurrencies have become a common investment asset for many banks, private equity firms, and high-net-worth individuals in the region. Additionally, Chinese state-owned businesses have also shown interest in crypto by launching investment funds focused on this asset class.
While Dave Chapman of OSL Digital Securities believes that digital assets have a future in East Asia, he cautions that it’s too early to determine whether Hong Kong’s ambitions will lead to a full embrace of crypto by China.
To Markus Thielen, head of research and strategy at Matrixport, Hong Kong will serve as a “test case” for broader crypto adoption in China. Hong Kong has a unique advantage in one particular area that other states have struggled to capitalize on:
“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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