September 19, 2024
By Our Correspondent
Recent research indicates that Hong Kong has experienced the most significant increase in cryptocurrency activity within East Asia, as the city strives to establish itself as a hub for virtual assets. This surge occurs despite the stringent ban imposed by the government on digital currencies, which many in mainland China are utilizing to safeguard their wealth. According to the Global Cryptocurrency Adoption Index released by Chainalysis on Wednesday, Hong Kong has ascended to the 30th position, a notable improvement from last year’s 47th place.
The report highlights an impressive 85.6 percent year-on-year increase in the value of cryptocurrency transactions in Hong Kong, marking the highest growth rate in East Asia. Chainalysis attributes this rise to the proactive stance of Hong Kong regulators in embracing cryptocurrencies and their commitment to establishing a comprehensive regulatory framework, which has fostered institutional adoption.
The index evaluates various cryptocurrency services, including centralized exchanges and decentralized protocols. The report also reveals that South Korea leads East Asia in terms of cryptocurrency transaction value, with Hong Kong and mainland China following as the second and fifth largest markets in the region, respectively. The recent rankings underscore Hong Kong’s success in enhancing the appeal of its virtual asset market through regulatory clarity, which has been instrumental in mitigating risks for retail investors. Following the government’s announcement of supportive policies for virtual assets in 2022, the initial licensing requirements for cryptocurrency exchanges were implemented in June 2023.
Since then, the city has introduced exchange-traded funds that invest directly in cryptocurrency tokens and is currently developing regulations for stablecoins, which are generally linked to fiat currencies like the US dollar.
Cryptocurrency activities in mainland China seem to have diminished this year, as Beijing continues to enforce its stringent prohibition. The country’s position in the Chainalysis index has dropped to 20th place, a decline from the 11th position it held last year.
The Chinese government maintains a comprehensive ban on the trading and mining of cryptocurrencies, including bitcoin, due to concerns about financial risks. In 2017, Beijing prohibited initial coin offerings and mandated the closure of cryptocurrency exchanges. Subsequently, in 2021, the government banned bitcoin mining and declared all crypto-related enterprises illegal, citing their potential to disrupt financial stability and facilitate criminal activities.
Nevertheless, Chinese citizens have increasingly resorted to over-the-counter (OTC) cryptocurrency platforms to transfer their assets abroad or safeguard their wealth, as indicated by the Chainalysis report.
According to Ben Charoenwong, an associate professor of finance at the Asia Campus of the Institut Européen d’Administration des Affaires, individuals are seeking methods to move funds out of the country due to a prevailing negative sentiment towards the Chinese economy. Charoenwong noted that the growing utilization of OTC cryptocurrency in China reflects a demand for quicker avenues to transfer money, which is also linked to the downturn in the country’s property market, where real estate is often viewed as an investment by Chinese citizens.
