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China May Be Reconsidering Its Stance on Crypto and Hong Kong Could Be A Testing Ground: Chainalysis Report

Blockchain analytics firm Chainalysis revealed that China and Hong Kong are seeing active over-the-counter (OTC) crypto activities despite prolonged bearish sentiment globally. It also explores whether China uses Hong Kong’s crypto-friendly environment as a testing ground for its next move on crypto regulations.

The blog titled “Eastern Asia: Do Recent Hong Kong Developments Signal More to Come for China and Region at Large?” is an excerpt from an upcoming report “2023 Geography of Cryptocurrency Report” to be released later in October.

It notes Eastern Asia is the fifth most active crypto market, accounting for 8.8% of global crypto activity between July 2022 and June 2023.

“Hong Kong is an extremely active crypto market by raw transaction volume, with an estimated $64.0 billion in crypto received between July 2022 and June 2023. That’s not far behind China’s $86.4 billion received during the same time period, despite Hong Kong having a population 0.5% the size of mainland China’s,” Chainalysis says in its blog.

Hong Kong is a special region within China and enjoys autonomy in several areas, enabling it to have a crypto policy independent that of China. Over the past year, Hong Kong has emerged as a crypto-friendly jurisdiction, with clear regulations that allow crypto companies to seek a license to set up businesses and operate in Hong Kong.

“The increasingly close relationship between China and Hong Kong leads some to speculate that Hong Kong’s growing status as a crypto hub may signal that the Chinese government is reversing course on digital assets, or at least becoming more open to crypto initiatives,” the blog says.

It further analyzes China’s varying policies since 2019, when Eastern Asia was one of the biggest markets for crypto in transaction volume, driven by China’s huge trading activity and mining sector. However, crypto activity in Eastern Asia and China has declined sharply in the last two years since China banned crypto activities. However, a significant change is being noticed in East Asia, where Hong Kong has launched industry-friendly regulations over the past year, fostering bubbling optimism.

“Much of this is driven by Hong Kong’s highly active OTC market. OTCs, or “over-the-counter” trade desks, typically facilitate large transfers for institutional investors and high net worth individuals, which are conducted privately so as to not affect asset prices or broadcast traders’ activity,” the blog says.

The blog concludes by saying Hong Kong’s new crypt initiatives, apparently with the tacit approval of China, could hint that the Chinese government’s stance on cryptocurrency is still evolving.

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