China could be warming up to crypto through Hong Kong’s active over-the-counter crypto market despite bans on the mainland, Chainanlysis found in a new report.
“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 crypto analytics firm said in a report published today.
The report shows that Hong Kong ranked fifth in crypto transaction volume in East Asia between July 2022 and June 2023, with an estimated $64 billion in crypto received. That follows South Korea, Japan, mainland China and Taiwan. “[Hong Kong’s figure] is 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,” the report said.
Recent developments have “created speculation that the Chinese government may be warming to cryptocurrency and that Hong Kong may be a testing ground for these efforts,” the report continued. “Hong Kong functions as a Special Administrative Region of China, meaning it has autonomy over many aspects of policy, including regulation of cryptocurrency.”
Chainalysis added that Hong Kong’s active over-the-counter market “manifests in the city’s breakdown of transaction volume by transaction size.” It added that mainland China and Hong Kong also show unique breakdowns in most-used crypto platform types, “though these numbers should be taken with a grain of salt given the anecdotal evidence that much crypto activity in both countries takes place through OTCs or through informal, grey market peer-to-peer businesses.”
China’s crypto ban
China banned crypto transactions on the mainland in September 2021, but multiple local courts across the country have ruled that cryptocurrency should be viewed as property regarding ownership.
Unlike its neighboring Chinese mainland’s broader crackdown on cryptocurrency trading and mining, Hong Kong has rolled out the welcome mat for crypto firms this year — even going so far as encouraging banks to work with them. In October 2022, Hong Kong authorities released a series of policy statements about cryptocurrencies to strengthen its position as a global financial center. In December, Hong Kong’s Legislative Council passed an amendment introducing a full licensing regime for virtual asset service providers that took effect in June.
Ethereum co-founder Vitalik Buterin, however, said last month that crypto projects should consider how stable the crypto-friendliness would be when setting up a presence in Hong Kong.
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