In 2019, China’s crackdown on crypto significantly impacted cryptocurrency activity in East Asia. However, recent developments in Hong Kong present an opportunity for change. According to a blockchain analytics firm, these advances may act as a positive force, revitalizing cryptocurrency activity in the broader East Asian region.
However, between July 2022 and June 2023, a report by Chainalysis on Oct 2 revealed that East Asia accounted for only 8.8% of the global total in cryptocurrency value received. It places East Asia as the fifth most active cryptocurrency market. However, Chainalysis suggests that recent developments in Hong Kong have the potential to boost this perception.
A promising boost in East Asia could emanate from Hong Kong. Over the past year, Hong Kong has introduced a series of crypto initiatives and regulations that strongly support the industry’s growth, leading to an increasing sense of optimism.
Furthermore, data from Chainalysis reveals that the proportion of cryptocurrency transaction value in East Asia decreased from around 30% in 2019 to below 10% as of the second quarter of 2022. Its decline is attributed to several bans on crypto activities implemented by Chinese authorities.
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Hong Kong’s Crypto Hub Aspirations and China’s Cryptocurrency Landscape
Chainalysis has highlighted a notable surge of optimism prevailing in Hong Kong. Interestingly, despite its comparatively smaller population, the city stands out as an “exceptionally active crypto market” in terms of raw transaction volume, as observed by Chainalysis.
Furthermore, Merton Lam, from Crypto HK, a digital asset trading center in Hong Kong, highlights the increasing importance of cryptocurrencies in investment portfolios. Banks, private equity firms, and high-net-worth individuals are recognizing their value in the region. In addition, state-owned Chinese enterprises have recently introduced investment funds with a focus on cryptocurrencies.
In addition, Dave Chapman, a representative from OSL Digital Securities, shared with Chainalysis that digital assets have a strong presence in East Asia. However, it is premature to conclude whether Hong Kong’s crypto aspirations indicate China’s full adoption of the cryptocurrency sector.
The effort to position Hong Kong as a potential cryptocurrency hub does not necessarily reflect the Chinese government’s official stance on cryptocurrencies. Instead, it could be seen as an exploratory step taken towards grasping digital assets without relaxing mainland policies.
During an interview with Cointelegraph, Markus Thielen, the Head of Research and Strategy at Matrixport, highlighted that Hong Kong has emerged as a pivotal “testing ground” for broader cryptocurrency acceptance within China.
Nevertheless, Hong Kong is strategically focusing on a specific area that has eluded other regions, according to Thielen:
An essential aspect is the genuine interest in attracting the crypto asset management industry. This industry has been a missing puzzle piece so far. Most crypto firms are often labeled as service providers rather than being recognized as end-users of crypto assets.
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“The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.”
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