Original compilation: BitpushNews Yanan
Original source:Chainalysis
East Asia is the fifth most active cryptocurrency market studied by Chainalysis. From July 2022 to June 2023, cryptocurrency activity in East Asia accounted for 8.8% of total global cryptocurrency activity.
East Asia’s cryptocurrency markets appear to be less affected by institutional activity than other larger markets. At the same time, East Asia is more oriented toward DeFi projects than similarly sized markets such as the Middle East, North Africa, and Latin America.
Over the past few years, there has been a noticeable decline in cryptocurrency activity in East Asia. In 2019, East Asia became one of the worlds largest cryptocurrency trading markets, thanks to mainland Chinas huge trading and mining operations. While trading volumes in the region remain high, crypto market activity in East Asia has weakened significantly due to a series of bans on cryptocurrencies imposed by the Chinese government.
However, Hong Kong’s multiple cryptocurrency initiatives and friendly industry policies in recent years have brought new vitality to East Asia. As relations between mainland China and Hong Kong become increasingly closer, there is speculation that Hong Kongs rising status in the cryptocurrency field may herald a change in the mainland governments policy on digital assets, or at least a more open attitude towards cryptocurrencies. Data shows that Hong Kong’s cryptocurrency trading volume reached $64 billion from July 2022 to June 2023. Considering that Hong Kongs population is only 0.5% of that of mainland China, this transaction volume is still very eye-catching compared with mainland Chinas US$86.4 billion during the same period.
Hong Kong’s active over-the-counter (OTC) market is the main driver of its surge in trading volume. OTC, or over-the-counter transaction, mainly provides large-amount transfer services for institutional investors and high-net-worth individuals. These trades are typically conducted privately to avoid affecting asset prices or revealing the traders activities. Hong Kong’s “predilection” for OTC trading is reflected in trading volumes by trade size, which we compare to surrounding regions and the overall global average in the chart below.
Hong Kong has a larger share of large-value transactions ($10 million and above) than the rest of East Asia, especially mainland China. In terms of transaction size, South Korea seems to be the market in East Asia that is least affected by institutional activities. This may be because local regulations make it difficult for financial institutions to participate in trading activities - South Korea stipulates that opening a cryptocurrency trading account must be linked to a specific personal bank account, which makes institutional participants face layers of obstacles when entering the crypto market. Overall, Japan appears to be closest to the global average in its mix of retail and institutional trading.
When we break down the most commonly used cryptocurrency platform types in various regions of East Asia, we will find interesting regional preferences.
Likewise, Japan is once again closely following the global market, with most trading activity concentrated on centralized exchanges and various DeFi protocols, with similar proportions. On the other hand, 68.9% of South Korea’s trading volume is related to centralized exchanges, while less is related to DeFi protocols. This may be related to the negative sentiment in South Korea regarding the TerraLuna thunderstorm. The TerraLuna thunderstorm affected a large number of South Korean cryptocurrency users - even ordinary people who did not lose money may have seen a large number of reports in the local media. After the incident, South Korea introduced several new regulations to regulate the operations of centralized exchanges, including requiring them to hold reserve funds. As DeFi’s image in South Korea has been tarnished, these new measures may have increased South Korean people’s trust in centralized exchanges.
Mainland China and Hong Kong also have their own unique features in the use of encryption platforms. However, some people believe that many crypto transactions in these two places are completed through OTC or gray market peer-to-peer transactions (grey market peer-to-peer), so these data are not completely accurate. We discuss this issue further below.
Hong Kong’s growing status as a cryptocurrency hub, what implications does this have for the future of cryptocurrencies in mainland China?
Over the past few years, mainland China’s relationship with cryptocurrencies has been one of the most interesting and elusive stories in the industry. As recently as 2020, mainland China was one of the most active crypto markets in the world and was far ahead in Bitcoin mining. But in 2021, mainland China began to crack down on cryptocurrencies, with the People’s Bank of China even declaring all crypto activities illegal.
However, recent developments have led to speculation that the mainland Chinese government may be softening its stance on cryptocurrencies, and that Hong Kong may become a testing ground for the mainland government’s efforts in the crypto space. Hong Kong is a special administrative region of the Peoples Republic of China and has significant policy autonomy, including the regulation of cryptocurrencies. As mentioned above, Hong Kong has formed a large local crypto market that is dominated by OTC trading. Last year, Hong Kong instituted new regulations to allow retail cryptocurrency trading in a regulated environment. In addition, mainland Chinese state-owned enterprises have also launched cryptocurrency-focused investment funds and cooperated with local crypto companies in Hong Kong.
What is driving cryptocurrency adoption in Hong Kong? What does this mean for the future of cryptocurrencies in mainland China? In response to these issues, the founders of two over-the-counter trading companies in Hong Kong, Merton Lam of Crypto HK and Dave Chapman of OSL Digital Securities, expressed their views.
Both founders said that various practical application scenarios are the main factors driving the popularity of cryptocurrency in mainland China and Hong Kong. Merton introduced some scenes he observed while operating Crypto HK:"Different customers have different needs. We work with many investment banks, private equity firms and high net worth individuals. For them, cryptocurrencies are part of their investment portfolio. They primarily invest in Bitcoin and Ethereum, but recently some people have also shown interest in altcoin altcoins, which is really interesting."Chapman expressed a similar sentiment, adding that many institutional investors are optimistic about cryptocurrencies:"The future of digital assets is no longer in doubt; it is generally accepted that digital assets will not disappear,"He said,"Regardless of whether the traditional financial industry is ready to accept digital assets, the fact is that there are already many institutional investors keen to explore and develop their own digital asset strategies."
Chapman noted that similar motivations, such as potentially high returns, are also driving retail investors in the region. Merton agreed, but added that Crypto HK meets the needs of many foreign users. Many of them want to use cryptocurrencies to move some of their wealth out of their national currencies and banking systems, especially those in countries with unstable economies or strict capital controls. Merton said:"I heard from other cryptocurrency exchanges that many Russians and Ukrainians come to Hong Kong and want to move their money to a safe place via cryptocurrency. These people are not multi-millionaires, ordinary people are doing this too."In addition, transferring funds across borders may also interest some mainland Chinese users. Recently, an article published by the Financial Times detailed how some mainland Chinese users use Hong Kong’s over-the-counter market to move funds to other regions or convert fiat currencies into cryptocurrencies. These are things that are difficult to do in mainland China.
International business payments are another key application scenario for cryptocurrencies for Hong Kong, Merton said. Paying with cryptocurrencies has many advantages over traditional bank transfers. He said: “For many businesses, it is much more convenient to pay suppliers through stablecoin transfers than through banks. SWIFT transaction settlement can take up to three days, especially with developing countries such as South Asia and Africa. This is particularly cumbersome when conducting transactions with partners.” In addition, the international payment scene also brings another noteworthy factor: given that the U.S. dollar gives the United States global sanctions power, China has been trying to weaken the role of the U.S. dollar in international trade. leading position. This is also one of the motivations behind China’s promotion of the CBDC (digital renminbi) project. The potential value of cryptocurrencies in international trade may be the reason why the mainland Chinese government remains open to blockchain technology.
This naturally leads to another question that everyone is concerned about: Does Hong Kong’s positive attitude towards cryptocurrencies over the past year indicate that the mainland Chinese government’s attitude towards crypto technology is softening? Chapman has special insight as OSL became one of the first companies to receive a crypto exchange license under Hong Kong’s recent new regulatory regime. “Promoting Hong Kong as a potential crypto hub does not necessarily represent the mainland Chinese government’s stance on cryptocurrencies,” he said, adding, “However, we do observe that many Chinese state-owned enterprises are indirectly supporting Hong Kong’s Web3 project, which It could be a way to explore digital assets without relaxing mainland regulatory policies.” In other words, while these developments increase the likelihood that Hong Kong will become a global leader in the digital asset market, it is important to conclude that this will have an impact on the entire Its too early to tell what China means.
Overall, Hong Kong’s unique crypto market provides a variety of practical application scenarios for local and foreign users. What’s more, while nothing is settled yet, the mainland Chinese government’s apparent acquiescence to Hong Kong’s new cryptocurrency initiatives could be a hint that its stance on cryptocurrencies is changing. This may mean that the former king of the cryptocurrency field will usher in some exciting changes.
