Chainalysis East Asia Report: Do Hong Kong Residents Favor DeFi? What is China's View on Cryptocurrency Technology?

The blockchain research firm Chainalysis has recently released cryptocurrency economic reports focusing on Central and Southern Asia as well as Central and Southern Africa. The latest report on Eastern Asia highlights the emerging cryptocurrency regulations in Hong Kong. The study found that users in Hong Kong tend to prefer DeFi over CeFi, and despite having a smaller population compared to China, the overall trading volume remains competitive.

Decline in East Asian Cryptocurrency Trading Volume

As the 5th most active cryptocurrency market globally, East Asia accounted for 8.8% of the global market from July last year to June this year, with cryptocurrency users in the region showing a tendency to frequently use DeFi protocols.

The report also found that the previously leading East Asian region in trading volume saw a sharp decline overall in 2020, speculated to be due to the large trading activities and mining companies in China, which led to a slump in East Asian trading volume after facing restrictions from the Chinese government.

Hong Kong Keeping Pace in Trading Volume

As one of the global financial centers, Hong Kong also plays a significant role in driving the cryptocurrency market in East Asia.

Despite Hong Kong's population being 200 times smaller than China's, the value of cryptocurrency received by Hong Kong from July last year to June this year reached $64 billion, not far from China's $86.4 billion.

Active OTC Market Trading

The report points out that Hong Kong's substantial trading volume is closely related to its active OTC market, where OTC services provide large-scale cryptocurrency trading for local institutions and major investors.

As shown in the chart, over 46.8% of the trading volume is contributed by institutions with over $10 million, a trend also reflected in Japan and Taiwan.

Preference for DEX in Hong Kong?

In-depth analysis of the commonly used cryptocurrency platforms in East Asian countries reveals that users in Hong Kong and Taiwan are more familiar with DEX and other DeFi protocols, with only about 30% of users using CEX.

In contrast, China and South Korea tend to use CEX, with Chainalysis speculating that South Korea's shift could be due to the collapse of TerraLuna and the regulatory crackdown on centralized exchanges, weakening local interest in DeFi and strengthening trust in CEX.

Increasing Crypto Adoption in Hong Kong, Softening Stance in China?

The report also expresses views on Hong Kong's growing status as a cryptocurrency hub, indicating that the Chinese government may be softening its stance on digital assets or becoming more open.

By interviewing two major OTC service providers in the area, Chainalysis aims to clarify what is driving cryptocurrency adoption in Hong Kong and what Hong Kong's actions signify.

OSL Digital Securities's Dave Chapman stated:

Considering Hong Kong as a cryptocurrency hub does not represent the Chinese government's stance on cryptocurrencies. However, we have found many China-related enterprises indirectly supporting Hong Kong's web3 companies.

He believes that through this move, China can explore and understand the possibilities of digital assets without relaxing mainland China's policies, and potentially propel Hong Kong to become a global leader in regulated digital asset markets.

Two Main Drivers of Crypto Adoption in Hong Kong

Additionally, CryptoHK's Merton Lam pointed out the rapid development of crypto adoption in Hong Kong recently, citing the high potential for investment returns in cryptocurrencies and their use as cross-border payment tools among businesses.

Asset Transfers Across Borders

He claimed that, based on the multiple foreign users served by CryptoHK, many countries with unstable economies or strict capital controls are interested in converting some assets in their banking systems into cryptocurrencies and sending them to a safe place.

Given the threat of war in Russia and Ukraine, locals are transferring cryptocurrencies through Hong Kong, not necessarily millionaires, just ordinary people.

International Business Payments

Furthermore, he believes that Hong Kong and the Chinese government also see the value of cryptocurrencies as international trade tools. By using stablecoin transfers, they can reduce the time costs businesses spend in traditional banks, accelerating and streamlining the flow of funds in international business payments, all of which are currently in progress.

Optimistic Views from Hong Kong Crypto Players

When asked about the prospects of crypto development in Hong Kong, both Merton Lam and Dave Chapman expressed optimism:

Regardless of whether traditional finance is ready to accept digital assets as a new asset class, their future is unquestionable.

They also added, "There is a general belief that digital assets will not disappear, and many institutional investors who interact with us are optimistic about their development."