<p>Hong Kong is making waves in the crypto sector that could potentially signal a shift in China’s attitude toward digital assets. That’s a theory that has been given consideration by crypto analytics firm Chainalysis in a recently<a href="https://www.chainalysis.com/blog/eastern-asia-cryptocurrency-adoption/" rel="noopener noreferrer nofollow"> released</a> report highlighting Hong Kong’s crypto transformation and suggesting a growing tolerance for crypto within China’s corridors of power.</p><h2 id="header-0">OTC trade showing resilience</h2><p>Despite China’s stringent regulations and the ongoing crypto market downturn, Hong Kong’s over-the-counter (OTC) crypto market has demonstrated remarkable resilience, with a transaction volume of $64 billion in the past year. While this is slightly less than China’s $86.4 billion, it’s a noteworthy achievement considering Hong Kong’s smaller population and the challenges facing the crypto industry.</p><p>The close relationship between China and Hong Kong has led some industry commentators to speculate that Hong Kong’s rise as a crypto hub could indicate a shift in China’s stance on digital assets.</p><p>The crypto-friendly environment in Hong Kong has not gone unnoticed. Merton Lam of Crypto HK, an OTC digital asset trading center in the city, notes that cryptocurrencies have become an integral part of investment portfolios for banks, private equity firms, and high-net-worth individuals in the region. Even Chinese state-owned businesses are launching cryptocurrency-focused investment funds.</p><h2 id="header-1">Hong Kong cornering institutional trade</h2><p>What sets Hong Kong apart in the crypto landscape is its proficiency in large institutional crypto transactions, with 46.8% of its annual crypto trades exceeding $10 million. In contrast, retail trades under $10,000 accounted for just 4% of the city’s crypto volume, slightly below the global average of 4.7%. This institutional dominance distinguishes Hong Kong from other Asian regions.</p><p>For comparison, South Korea heavily relies on retail trading on centralized exchanges, while Japan maintains a transaction breakdown that aligns closely with global trends, balancing centralized exchanges with DeFi protocols.</p><h2 id="header-2">A cautionary note</h2><p>However, Dave Chapman of OSL Digital Securities offers a note of caution, suggesting that Hong Kong’s promotion as a crypto hub might be more exploratory, aimed at gaining a better understanding of digital assets without significantly loosening mainland policies.</p><p>Despite the uncertainties, Markus Thielen, Head of Research and Strategy at Singapore’s Matrixport, believes that Hong Kong is acting as a “testing ground” for broader cryptocurrency adoption in China. The city’s unique position makes it an attractive destination for the crypto asset management industry, setting it apart from other jurisdictions that often view crypto firms as service providers rather than end-users.</p><p>Hong Kong’s progress is particularly noteworthy when considering the broader context of East Asia’s crypto market. Chainalysis analysis reveals that East Asia’s share of crypto transaction value dropped from around 30% in 2019 to less than 10% by the second quarter of 2022 due to China’s crypto bans. Hong Kong’s recent surge could potentially act as a “tailwind” to reignite crypto activity in the region.</p><p>The evolving relationship between the mainland and the autonomous territory of Hong Kong may hold the key to understanding the future of cryptocurrency in the region.</p>

Hong Kong’s Development as Crypto Hub May Soften Chinese Stance on Crypto

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