8,8% of all cryptocurrency industry activity from July 2022 to June 2023 was recorded in East Asia, according to data from Chainalysis.
In its 2023 Geography of Cryptocurrency Report, blockchain data analytics company Chainalysis highlighted that East Asia has emerged as the fifth most active cryptocurrency market worldwide, despite restrictions imposed on cryptocurrencies by China, which occupies most of the subregion.
Almost all Bitcoin and cryptocurrency-related activity was declared illegal in China in 2021. Still, Chainalysis estimates that this activity could soon return and become legal again in the country.
Is China Reversing Its Cryptocurrency Restrictions?
The blockchain analytics firm highlighted that the series of restrictions imposed by the Chinese government on the crypto industry has significantly reduced cryptocurrency activity over the past year, especially in the crypto mining sector, which was dominated by a wide margin by this country.
But despite current restrictions, cryptocurrency activity in China has not died down and remains substantial, according to Chainalysis.
The firm noted that investors remain very interested in cryptocurrencies and that, in addition, the Hong Kong Special Administrative Region has been implementing several initiatives and regulations favorable to the crypto industry, which are once again fostering “bubbling optimism” towards digital assets.
For Chainalysis, Hong Kong’s growing status as a global cryptocurrency hub may signal the Chinese government’s intention to reverse course on its current crypto restrictions, or at least indicate that the country is becoming more open to crypto opportunities and innovation. However, it also stated that it is still too early to tell which direction China’s cryptocurrency policies will take and whether they will ever be reversed.
Hong Kong matches China in terms of cryptocurrency transaction volume
Although Hong Kong's population is just 0,5% of China's, the region's gross cryptocurrency transaction volume over the past year was very close to that recorded by China over the same period.
According to Chainalysis data, Hong Kong handled a cryptocurrency transaction volume of $64.000 billion from July 2022 to June 2023. In the same period, China handled a cryptocurrency transaction volume of $86.400 billion.
Source: Chainalysis
Much of the cryptocurrency activity taking place in the Hong Kong region is related to the OTC market. According to Chainalysis, high net worth investors and institutional investors are mostly accessing cryptocurrencies through the OTC market.
This special administrative region, which handles its own regulations, appears to serve as a testing ground for the cryptocurrency market. Founders of OTCs CryptoHK and OSL Digital Securities, Merton Lam and Dave Chapman, respectively, told Chainalysis that cryptocurrencies form a significant part of their clients’ investment portfolios, who are more willing to move away from traditional banking systems and explore the potential and opportunities offered by digital assets.
Both agreed that cryptocurrencies are not going to disappear and that they are increasingly gaining adoption among ordinary people.
Chainalysis found that several Chinese government-backed companies are also indirectly supporting Hong Kong Web3 companies, which could indicate that China’s stance on the crypto industry may be evolving.
Continue reading: Hong Kong begins a new chapter for cryptocurrencies in China
