According to a recent report by Chainalysis, it has been observed that China may be exhibiting a growing inclination towards the field of cryptocurrency, mainly through the active over-the-counter crypto market in Hong Kong. This development is noteworthy considering the existing prohibitions on cryptocurrency within mainland China.
The crypto analytics firm stated in a report released today that some believe that Hong Kong’s growing prominence as a hub for cryptocurrency could indicate a reversal of the Chinese government’s position on digital assets or, at the very least, greater openness to crypto initiatives, given the closer ties between the two countries.
According to the information provided, Hong Kong has managed to gain fifth place in terms of transaction volume involving cryptocurrencies within the East Asian area throughout the period extending from July 2022 to June 2023. During this period, Hong Kong reportedly received around sixty-four billion dollars worth of cryptocurrencies. This is an impressive figure.
The Republic of Korea, Japan, China’s mainland, and Taiwan are the nations in the list above in the order in which they were named. Despite having a population of just 0.5 percent the size of mainland China, the research indicates that Hong Kong’s total is equivalent to China’s $86.4 billion collected over the same time frame. This is even though Hong Kong is an independent territory.
In response to the report, recent developments have given rise to speculation regarding the potential inclination of the Chinese government towards cryptocurrency, with Hong Kong potentially serving as a platform for experimental initiatives in this domain. Because the People’s Republic of China recognizes Hong Kong as a Unique Administrative Region, it is granted a certain amount of autonomy in various policy fields, including the regulation of Bitcoin.
Chainalysis went on to say that the city’s split of transaction volume by transaction size demonstrates how busy Hong Kong’s over-the-counter market is. The data indicates that mainland China and Hong Kong exhibit distinct patterns in utilizing cryptocurrency platforms.
However, it is essential to exercise caution when interpreting these figures, as anecdotal evidence suggests that a significant portion of crypto transactions in both regions occur through over-the-counter (OTC) channels or informal, unregulated peer-to-peer networks operating in the grey market.
The Cryptocurrency Prohibition in China
In September 2021, the Chinese government banned cryptocurrency transactions within the mainland. However, it is noteworthy that various local courts nationwide have rendered judgments affirming the classification of cryptocurrency as property in terms of ownership.
In contrast to the ongoing comprehensive regulatory measures implemented by the Chinese mainland about cryptocurrency trading and mining, Hong Kong has adopted a more receptive stance towards crypto enterprises in the current year.
It has actively fostered an environment conducive to collaboration between banks and such entities, demonstrating its commitment to embracing this emerging sector. In October 2022, the Hong Kong authorities issued a series of policy statements about cryptocurrencies to fortify its standing as a prominent global financial hub.
An amendment that introduced a comprehensive licensing framework for virtual asset service providers was passed by the Legislative Council of Hong Kong in December and went into effect in June. The amendment was enacted as part of a legislative process in December.
According to statements made by Ethereum co-founder Vitalik Buterin in the previous month, it is advisable for cryptocurrency projects to carefully evaluate the level of stability of their crypto-friendly initiatives before establishing a foothold in Hong Kong.