Hong Kong has seen the biggest uptick in cryptocurrency activity in East Asia amid the city’s efforts to become a virtual-asset hub, according to new research, while mainland Chinese use digital currencies to preserve wealth in spite of the government’s draconian ban.
The city rose to 30th place, up from the No 47 spot last year, in this year’s Global Cryptocurrency Adoption Index rankings published on Wednesday by research firm Chainalysis. It said Hong Kong saw an 85.6 per cent year-on-year surge in cryptocurrency transaction value, the largest growth seen in East Asia.
Hong Kong regulators’ acceptance of cryptocurrencies and “decisiveness” in laying down a regulatory framework helped build up institutional adoption, according to Chainalysis. Its index measures activities across several types of cryptocurrency services, including centralised exchanges and decentralised protocols.
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South Korea recorded the largest cryptocurrency transaction value in East Asia, the Chainalysis report said. It also showed that Hong Kong and mainland China ranked as the second- and fifth-largest crypto markets, respectively, in the region.
Cryptocurrency automated teller machines, operated by Coinhero, seen in Hong Kong on August 5, 2024. Photo: Bloomberg alt=Cryptocurrency automated teller machines, operated by Coinhero, seen in Hong Kong on August 5, 2024. Photo: Bloomberg>
The latest rankings reflect how Hong Kong has managed to make the city’s virtual-asset market attractive via “regulatory clarity”, which has helped guard against risks to retail investors.
Following the Hong Kong government’s announcement of policy support for virtual assets in 2022, the first licence requirement for cryptocurrency exchanges took effect in June 2023. Since then, the city has launched exchange-traded funds that invest directly into cryptocurrency tokens. It is also working on regulation for stablecoins, which are typically pegged to fiat currencies such as the US dollar.
Meanwhile, cryptocurrency activities on the mainland appear to have declined this year, as Beijing continues to maintain its rigid ban.
Mainland’s China’s ranking this year in the Chainalysis index fell to 20th place, down from the No 11 spot last year.
Mainland China maintains a blanket ban on the trading and mining of cryptocurrencies, such as bitcoin, because the government regards them as a source of financial risk. Photo: Shutterstock alt=Mainland China maintains a blanket ban on the trading and mining of cryptocurrencies, such as bitcoin, because the government regards them as a source of financial risk. Photo: Shutterstock>
Beijing banned initial coin offerings and ordered the closure of cryptocurrency exchanges in 2017. The government then proceeded to ban bitcoin mining in 2021, while declaring all crypto-related businesses illegal because these “disrupt financial order and are a breeding ground for criminal activity”.
Chinese citizens, however, have increasingly turned to over-the-counter (OTC) cryptocurrency platforms as a means to move their assets out of the country or to preserve their wealth, according to the Chainalysis report.
People “are looking for ways to move money out of the country”, as “general sentiment towards the Chinese economy has been negative”, according to the Chainalysis report, which quoted Ben Charoenwong, associate professor of finance at the Asia Campus of the Institut Europeen d’Administration des Affaires – a non-profit graduate business school that maintains campuses in France, Singapore and the United Arab Emirates.
“The increasing use of OTC crypto in China suggests that people are looking for faster options to move money,” Charoenwong said in the report. He added that the rise of OTC cryptocurrency activities on the mainland is related to downward shifts in the country’s property market, where real-estate ownership is treated as an investment by Chinese citizens.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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