Blockchain analysis company Chainalysis recently released a research report on the East Asian cryptocurrency market, which stated that Hong Kong is becoming the "engine" driving the Web3 market in the region.
Data shows that East Asia is the fifth largest active cryptocurrency market in the world, accounting for 8.8% of global cryptocurrency activity between July 2022 and June 2023.
Cryptocurrency markets in East Asia appear to be less driven by institutional activity than other markets with larger crypto activity, with East Asia exhibiting higher "DeFi tendency".
In fact, East Asia was one of the markets with the highest cryptocurrency trading volume in the world in 2019, but then a series of domestic bans on cryptocurrencies led to a significant decline in trading activity and the mining market in the following two years. .
Data shows that the main driving force for the recovery of cryptocurrency activities in East Asia actually comes from Hong Kong, China. Recently, Hong Kong has launched a series of friendly cryptocurrency policies and compliance measures, which has promoted market optimism. Judging from the original transaction volume, Hong Kong is an extremely active cryptocurrency market. Between July 2022 and June 2023, the estimated transaction volume of Hong Kong’s cryptocurrency has reached 64 billion U.S. dollars. Although compared with over 100 billion U.S. dollars, There is some distance between the two major markets of Japan and South Korea, but if factors such as market size and population are taken into account, Hong Kong’s cryptocurrency trading activities are still very strong.
The reason why Hong Kong has been able to reach the top position in the East Asian crypto market in a short period of time is largely due to the highly active local over-the-counter trading market (OTC). These services usually provide large-amount transfer functions for institutional investors and high-net-worth individuals. Analysis found——
l Hong Kong, China, has a relatively high market share in institutional-level large-value crypto trading activities of US$10 million or more.
l South Korea appears to be the least institutional trading-driven market in East Asia, possibly due to local regulations that make it difficult for financial institutions to trade (South Korea requires a specific type of bank account linked to an individual to open a cryptocurrency trading account, which makes it difficult for institutions to participate Investors entering the cryptocurrency market face challenges).
l Most cryptocurrency activity in Japan is almost evenly distributed between centralized exchanges and various types of DeFi protocols. (Note: There are fewer DeFi-related transactions in South Korea, which may be related to the TerraLuna thunderstorm incident. Local people prefer to conduct activities on centralized exchanges)
Hong Kong’s growing role as cryptocurrency hub
As a special administrative region of China, Hong Kong has autonomy in many aspects of policy, including the regulation of cryptocurrencies. As mentioned above, Hong Kong has become a large local crypto market driven by OTC trading, but what exactly is driving the local crypto market? Cryptocurrency adoption, and what does Hong Kong mean for the future of cryptocurrencies across the region? Merton Lam of CryptoHK and Dave Chapman of OSL Digital Securities gave some insights.
Both acknowledged that a variety of use cases are driving the adoption of cryptocurrencies in Hong Kong, with Dave Chapman stating, “Many institutional investors are bullish on cryptocurrencies and the future of digital assets is no longer in doubt; there is a general belief that digital assets are not going away. , regardless of whether traditional finance is ready to accept digital assets as a new asset class.”
Merton Lam said that international business payments are another important use case for Hong Kong cryptocurrencies, as crypto payments can provide more advantages than bank transfers. For many businesses, it is easier to pay suppliers through stablecoin transfers than through banks. Much more, SWIFT transactions can take up to three days to settle, and payments can be particularly difficult when dealing with counterparties in developing countries such as South Asia and Africa. The international payments use case also brings to mind another factor worth noting: the U.S. dollar’s eroding dominance in international trade.
Overall, Hong Kong’s unique cryptocurrency market offers a variety of use cases, not just for local users but also for foreign users, while a flurry of local regulatory initiatives could signal a changing stance on cryptocurrencies in East Asia.
