In a recent report published by the blockchain data platform Chainalysis, it was noted that the recent volume of cryptocurrencies transferred to Hong Kong is now nearly on par with the volume transferred to mainland China over the past year, despite Hong Kong making up only 0.5% of the country’s population.
Chainalysis wrote in an excerpt from its 2023 Cryptocurrency Geography Report: “Hong Kong is an extremely crypto-positive market by raw transaction volume, receiving an estimated $64.0 billion in cryptocurrency from July 2022 to June 2023.” To compare, China received $86.4 billion in transactions during the same period.
While China issued a series of bans on anything related to cryptocurrencies in 2021, Hong Kong is currently actively promoting Web3 development. The region has implemented a regulatory framework requiring crypto and TradFi services to adhere to the same standards as of June and granted its first retail cryptocurrency exchange license to HashKey in August. This trend “may signal that the Chinese government is reversing its stance on digital assets or at least becoming more open to cryptocurrency initiatives,” according to Chainalysis.
Thus far, most activity in the region remains in the form of OTC (over-the-counter) trading—a private environment designed for large institutional transfers that do not impact the market.
In contrast, China boasts a larger percentage of “retail” volume (value transferred under $10,000) at 8.5% compared to Hong Kong’s 4%. China also has a significantly higher percentage of “professional” scale transfers ($10,000 to $1 million) at 34.8%, as opposed to Hong Kong’s 25.1%.
Interestingly, the majority of cryptocurrency activity in China (73.5%) still originates from centralized exchanges, whereas most in Hong Kong (68.3%) is connected to DeFi.
In a statement, Chainalysis APAC Policy Head Chengyi Ong explained that China’s approach to banning all cryptocurrency transactions—though activity has slowed—ultimately proved ineffective. She elaborated: “Cryptocurrency activity remains significant, indicating that the bans were either ineffective or loosely enforced. Rather than blanket bans, clear legal frameworks would better protect end-users by allowing them to interact with digital assets more safely.”