Hong Kong may offer up “a potential tailwind for East Asia” as crypto volumes plummeted in the region due to anti-crypto regulations in China, a Chainalysis report read.

Hong Kong's growing status as a crypto hub has also increased speculation that the “Chinese government is reversing course on digital assets, or at least becoming more open to crypto initiatives,” per the blockchain security firm.

The report also indicated that Hong Kong may also be providing a haven for crypto investors from war-torn nations of Russia and Ukraine and Chinese citizens who face restrictions on using crypto.


Hong Kong’s tailwind to crypto business in East Asia

The Chainlaysis report found that, until 2019, East Asia was “powered by China’s huge trading activity and mining sector.”

However, a crackdown “on virtually all things crypto” in the following years saw activity decline drastically over the past few years.

The region's rank has since dropped from number one to five by crypto trading volume.

It fell behind North America, Western Europe, Middle East and North African countries (MENA), Eastern Europe, and Central & Southern Asia (SCAO) over the last few years.

Hong Kong reopened crypto trading for retail traders in August which was seen as early efforts by the Chinese government to experiment with Hong Kong as a “testing ground.”


Investors in Hong Kong traded roughly $64 billion in crypto between July 2022 and June 2023, the Chainalysis report read, trailing behind China’s total of $82.4 billion, despite a “population 0.5% the size of mainland China’s.”

While the reopening of retail trading services bolstered Hong Kong’s crypto ecosystem, the report found that its over-the-counter (OTC) markets remained “highly active” which “typically facilitate large transfers for institutional investors and high net worth individuals.”

OTC desks facilitate crypto to fiat on and off ramp through direct exchange of cryptocurrencies between two parties outside of a traditional crypto exchange.

Hong Kong also saw a higher volume of large transactions of $10 million or more compared to other countries in East Asia like Japan and South Korea. These high-volume trades accounted for 46.8% of Hong Kong’s crypto trades for the year, Chainalysis noted.

South Korea is the “least institutional-driven market in the region,” per the report.

Chinese OTC dealers commented, "Russians and Ukrainians are coming to Hong Kong to get their money to safety using crypto.”

Several Chinese mainland investors might also be using the Hong Kong OTC market as a fiat on-ramp to crypto, which is “difficult to do in China.”

It also read that OTC desks and “informal, gray market peer-to-peer businesses” are the primary mediums of crypto activity in both Hong Kong and China.


Daily Debrief Newsletter

Start every day with the top news stories right now, plus original features, a podcast, videos and more.