Crypto Trading in China and Hong Kong Slumps as East Asia Activity Dips, Adoption Still Growing: Report

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Cryptocurrency activities in East Asia have seen a decline since Beijing’s crackdown on the market, but Hong Kong’s new virtual asset-friendly policies offer a glimmer of hope in the region, according to research firm Chainalysis. The value of cryptocurrency transactions in both mainland China and Hong Kong dropped over the past year, with the former maintaining a strict ban on the assets and the latter receiving an estimated US$64 billion in crypto transactions for the year. In comparison, Hong Kong’s trading volume was higher than the mainland’s with just 0.5% of its population.

Still, this is a slight decline from transaction volume in Hong Kong during the same period a year earlier, when more than US$70 billion was traded. Both Hong Kong and mainland China fell one spot in Chainalysis’ latest global cryptocurrency adoption ranking published last month.

From late 2021 to early 2022, the world saw a surge in speculative blockchain-based assets such as cryptocurrencies and non-fungible tokens (NFTs). The market soon crashed due to a series of crypto firm collapses, high interest rates and economic uncertainties.

Cryptocurrency investors remain cautious as the sector struggles to recover. In the second quarter of this year, trading volume on centralised crypto exchanges dropped to its lowest level since the fourth quarter of 2019, according to a report by CCData. Transaction volume also dropped in South Korea and Japan in the 12 months through June this year, according to Chainalysis. East Asia as a whole accounted for 8.8% of global crypto activities during that period, the firm said, declining from 12.9% in the previous year.

Hong Kong’s crypto trades are largely driven by its highly active over-the-counter (OTC) market, according to Chainalysis. These trade desks typically facilitate large transfers by institutional investors and high-net-worth individuals, it said. Institutional transactions, or those of more than US$10 million, made up 46.8% of Hong Kong’s crypto trades for the year, the firm noted, while retail investors, or those making trades of less than US$10,000, contributed just 4% during the period.

Since last October, when Hong Kong unveiled a policy shift and plans for new virtual asset regulations, the city has been courting the industry with promises of greater investor protections and the ability for licensed exchanges to sell to retail traders. This initiative has provided “a potential tailwind for East Asia” and “fostered bubbling optimism”, Chainalysis said.

Yet the same factors that have made cryptocurrencies controversial will also continue to drive adoption in Asia, according to Chainalysis: speculative investments, the ability to move wealth out of local banking systems, and making international payments with stablecoins.

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