The blockchain research company Chainalysis has been releasing crypto economic reports for Central and South Asia and Central and South Africa in recent weeks, and the East Asia region released this time focuses on Hong Kong, where crypto regulations are in the process of landing. Research has found that Hong Kong users tend to use DeFi rather than CeFi, and even though the population is smaller than China, the overall transaction volume is still not far behind.
Cryptocurrency trading volumes plummet in East Asia
As the fifth most active crypto market in the world, East Asia’s trading volume accounted for 8.8% of the global market from July last year to June this year, and crypto users in the region also show a tendency to use DeFi protocols more frequently.
The report also found that the East Asia region, which originally led the world in transaction volume, experienced a sharp decline in 2020. The report speculated that China's originally huge trading activities and mining companies were banned by the Chinese government, causing East Asia's transaction volume to slump.
Hong Kong’s trading volume is not lagging behind others
As one of the global financial centers, Hong Kong also plays a role in promoting the crypto market in East Asia.
It can be seen from its transaction volume that although China’s population is 200 times that of Hong Kong, the value of cryptocurrencies it received from July last year to June this year has reached as high as 64 billion U.S. dollars, not far from China’s 86.4 billion U.S. dollars.
Active over-the-counter (OTC) market
The report pointed out that Hong Kong’s huge trading volume is highly related to its active OTC market. OTC services provide large-scale cryptocurrency transactions for local institutions and large investors.
As can be seen from the chart above, more than 46.8% of the trading volume is contributed by large institutions with more than 10 million US dollars, and this situation is also reflected in Japan and Taiwan.
Do Hong Kong people love to use DEX?
An in-depth analysis of commonly used encryption platforms in East Asian countries shows that users in Hong Kong and Taiwan are familiar with DEX and other DeFi protocols, and only about 30% of users use CEX.
On the other hand, both China and South Korea tend to use CEX. Chainalysis speculates that South Korea should be due to the collapse of TerraLuna and the implementation of regulations on centralized exchanges, which weakened the local people’s interest in DeFi and strengthened their trust in CEX.
(Related report: Korean cryptocurrency investor’s perspective: Why is DeFi not popular in Korea?)
Hong Kong is increasingly open to crypto adoption, has China softened its stance?
The report also expressed views on Hong Kong’s growing status as a cryptocurrency hub, suggesting that the Chinese government may be softening its attitude towards digital assets, or at least becoming more open.
Chainalysis interviewed two major local over-the-counter trading service providers to clarify what is driving cryptocurrency adoption in Hong Kong, and what Hong Kong’s frequent actions mean.
Dave Chapman of OSL Digital Securities said:
Viewing Hong Kong as a cryptocurrency center does not represent the Chinese government’s stance on cryptocurrencies. However, we found that many Chinese government-related companies have indirectly supported Hong Kong web3 companies.
He believes that through this move, China can simultaneously explore and understand the possibilities of digital assets without relaxing the restrictions on China's inland policies, and promote Hong Kong's opportunities to become a global leader in the regulated digital asset market.
Two Motives Driving Cryptocurrency Adoption in Hong Kong
In addition, Merton Lam of CryptoHK pointed out the reasons for the rapid development of encryption adoption in Hong Kong recently. First, the high return potential of cryptocurrency, and second, as a cross-border payment tool between enterprises.
Transferring assets across borders
He claimed that taking the multiple foreign users served by CryptoHK as an example, most countries with unstable economies or strict capital restrictions are interested in converting some of the assets in their banking systems into cryptocurrencies and sending them to a safe place.
Considering the threat of war in Russia and Ukraine, local people are transferring cryptocurrencies through Hong Kong. They are either multi-millionaires or just ordinary people.
international business payment
In addition, he believes that the Hong Kong and Chinese governments have also seen the value of cryptocurrency as an international trade tool. Through stable currency transfers, companies can shorten the time cost spent in traditional banks, accelerate and make the flow of international commercial payments transparent, and All of the above is happening.
Hong Kong crypto players take optimistic view
When asked about the prospects for crypto development in Hong Kong, both Merton Lam and Dave Chapman expressed optimism:
Regardless of whether traditional finance is ready to accept digital assets as a new asset class, their future is no longer in doubt.
He added, "It is generally believed that digital assets will not disappear, and many institutional investors we interact with are also optimistic about their development."
This article Chainalysis East Asia Report: Do Hong Kong people love using DeFi? What is China’s view on encryption technology? First appeared in Chain News ABMedia.