Hong Kong could be a ‘tail wind’ for crypto activity in Asia: Chinalysis

Recent crypto developments in Hong Kong could provide a “potential tailwind” for a pick-up in crypto activity in the East Asian region, which has largely been hit by a 2019 ban on China-wide trading activities.

Cryptocurrency value received in East Asia was only 8.8% of the world in the period from July 2022 to June 2023, according to a report by Chainalysis on October 2, making it the fifth most active crypto market. However, Chinalysis said Hong Kong's recent moves could help increase this number.

“The potential tailwind for East Asia comes from Hong Kong, where several crypto initiatives launched last year and industry-friendly regulations have created optimism.

According to data from Chainalysis, East Asia's share of crypto transaction value will drop from around 30% in 2019 to less than 10% in the second quarter of 2022, following several crypto-related bans in China.

However, Chinalysis said that there is “bright optimism” in Hong Kong, despite its relatively small population, Hong Kong is already a “very active crypto market” in terms of trading volume.

Between July 2022 and June 2023, the market was worth $64 billion in crypto, compared to $86.4 billion in China, despite having only 0.5% of the mainland's population.

Merton Lam of CryptoHK, a Hong Kong-based over-the-counter digital asset trading hub, told Chinalysis that cryptocurrencies are becoming a staple in the investment portfolios of many banks, private equity firms and high-net-worth individuals. They work with the region.

Additionally, China's state-owned enterprises have also launched cryptocurrency-focused investment funds of late.

This being said, the digital asset platform OSL Digital Assurance Dave Chapman Chainalysis While digital assets “will not disappear” in East Asia – it is still too early to say whether Hong Kong's crypto ambitions China has fully embraced the cryptocurrency space.

“The promotion of Hong Kong as a crypto hub is not necessarily indicative of the Chinese government's position on crypto. […] This can be seen as a way of understanding digital assets without solving mainland policies.

Related: Hong Kong ranks highest for crypto-ready for two years in a row

Markus Thielen, head of research and strategy at Matrixport, told Cointelegraph that Hong Kong will serve as a “testing ground” for wider cryptocurrency adoption in China.

However, Hong Kong is making a big play in one area that other states haven't been able to take advantage of, says Thielen.

“Crucially, there is a real desire to attract the crypto asset management industry, which until now has been the missing piece of the puzzle, with most crypto firms being labeled as service providers rather than end users of crypto.”

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