China trembles in the face of Hong Kong's crypto emergence

The meteoric rise of crypto in Hong Kong is upsetting the balance of power in Asia. While mainland China has long dominated the digital landscape, the small enclave of Hong Kong now stands as a formidable rival. This unexpected turnaround, marked by a spectacular increase in crypto activities on the Asian continent.

Hong Kong: The new rising star of crypto

Hong Kong, known for its economic dynamism, has taken a bold turn into the crypto sphere. Faced with giants like China, this region has demonstrated its determination. Despite her recent turnaround, she refuses to be satisfied with a simple role of figuration.

Indeed, according to Chainalysis, Hong Kong recorded a volume of cryptocurrency transactions almost equivalent to that of mainland China, despite a much smaller population.

This level of activity is staggering, with Hong Kong seeing transactions of around $64.0 billion between July 2022 and June 2023. During the same period, China recorded $86.4 billion.

These figures show that Hong Kong is not only active, but also a force to be reckoned with in the crypto ecosystem.

Hong Kong’s rise is the result of thoughtful strategy. The region has taken a proactive approach, embracing Web3 technologies, and establishing a regulatory framework for cryptocurrencies. This clear vision has created a favorable environment, thereby attracting investors and innovators from the sector.

China: From bans to reflections

China, known for its sometimes draconian approach to regulation, surprised the world in 2021 by declaring crypto illegal. These bans, far from putting out the crypto fire, seem to have stoked it, with other regions like Hong Kong taking over.

Despite its rigid posture, there are signs that China may be reassessing its position. The dynamic adopted by Hong Kong could well serve as a barometer for China, which could consider a return to crypto gaming.

Beyond mere rumors, China officially recognized cryptos as legal goods this year.

After all, the proximity and close ties between Hong Kong and China may offer the latter a unique window into the potential benefits of a regulated crypto market.

Chainalysis analysis also suggests that Hong Kong’s moves could be interpreted as a sign that China could become more open to crypto.

If this turns out to be true, we could witness a major transformation in China’s crypto strategy.

OTC vs. Retail: The Underside of the Market

If one digs a little deeper into market mechanisms, a clear distinction emerges between Hong Kong and China in terms of the nature of transactions.

Hong Kong has a predominance of “over-the-counter” (OTC) transactions, which are often large volumes conducted outside of traditional exchanges.

On the other hand, China, despite its restrictions, saw a larger share of its transactions in “retail”, that is to say low value transfers.

This divergence highlights the different strategies and focuses of the two regions, with Hong Kong emphasizing the big players and China remaining a market dominated by small investors.

Another interesting aspect concerns the way crypto is exchanged. While China remains heavily tied to centralized exchanges, Hong Kong is leaning more towards DeFi, indicating greater adoption of decentralized technologies.

Hong Kong’s rise to prominence in the crypto sector is a reminder that, in this digital age, nothing is set in stone except transactions. Once a pillar of industry, China now faces challenges from its own neighbors.

With the crypto landscape rapidly evolving, it will be fascinating to see how these two giants navigate these turbulent waters. What is certain is that the horizon still conceals many mysteries, and that Bitcoin, discreetly, continues its heroic march.

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