Crypto trading in mainland China and Hong Kong drops along with East Asia activity, but adoption continues: report

Cryptocurrency activities in East Asia have declined in recent years 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 as Beijing maintained a strict ban on the assets in the mainland and amid an extended crypto market slump, new Chainalysis data showed.

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Hong Kong, which the firm called “an extremely active crypto market”, received an estimated US$64 billion in crypto transactions for the year, rivalling trading in the mainland with just 0.5 per cent of its population, Chainalysis noted.

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.

Cryptocurrency investors are still hunkering down as the sector struggles to recover. In the second quarter this year, trading volume on centralised crypto exchanges dropped to its lowest level since the fourth quarter of 2019, according to a report published in June by statistics provider 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 per cent of global crypto activities during that period, the firm said, declining from 12.9 per cent in the previous year.

Hong Kong’s crypto trades are driven largely 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 per cent of Hong Kong’s crypto trades for the year, the firm noted. Retail investors, or those making trades of less than US$10,000, contributed just 4 per cent during the period, slightly lower than the global average of 4.7 per cent.

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.

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This initiative has provided “a potential tailwind for East Asia” and “fostered bubbling optimism”, Chainalysis said.