Hong Kong could be a ‘tailwind’ for lagging crypto activity in Asia: Chainalysis

Recent crypto advancements in Hong Kong could provide a “potential tailwind” to lift crypto activity in the East Asian region, which has mainly suffered from a China-wide ban on trading activities since 2019.

Cryptocurrency value received in East Asia amounted to just 8.8% of the world between July 2022 and June 2023, according to an Oct. 2 report from Chainalysis, making it the fifth most active crypto market. However, Chainalysis said Hong Kong’s recent moves could help increase this number.

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.

Data from Chainalysis reveals that East Asia’s share of crypto transaction value went from around 30% in 2019 to less than 10% by the second quarter of 2022, after a number of crypto-related bans in China.

Share of cryptocurrency transaction value by region, with Eastern Asia colored in yellow. Source: Chainalysis.

However, Chainalysis said there is “bubbling optimism” in Hong Kong, noting that despite its much smaller population, Hong Kong is already an “extremely active crypto market” by raw transaction volume.

Between July 2022 and June 2023, the market received an estimated $64 billion in crypto, compared to $86.4 billion in China, despite having a population of just 0.5% the size of the mainland.

In comments to Chainalysis, Merton Lam of CryptoHK, an over-the-counter digital asset trading center in Hong Kong, said that cryptocurrencies are becoming a staple in the investment portfolios of many banks, private equity firms and high-net-worth individuals that they work with within the region.

In addition, Chinese state-owned businesses have also launched cryptocurrency-focused investment funds of late.

That being said, Dave Chapman of digital asset platform OSL Digital Securities told Chainalysis that while digital assets “are not going away” in East Asia — it’s still too early to say whether Hong Kong’s crypto ambitions mean China has fully embraced the cryptocurrency space.

The promotion of Hong Kong as a potential crypto hub is not necessarily indicative of the Chinese government’s stance on crypto [...] This could be viewed as an exploratory approach to understanding digital assets without loosening mainland policies.

Speaking to Cointelegraph, Matrixport’s Head of Research and Strategy Markus Thielen said Hong Kong will serve as a “testing ground” for broader cryptocurrency adoption in China.

However, Hong Kong is making a big play in one particular area which other states haven’t managed to capitalize on, says Thielen:

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.