China’s Growing Interest in Crypto through Hong Kong’s OTC Market
According to a report by Chainalysis, China may be showing signs of warming up to cryptocurrency through Hong Kong’s active over-the-counter (OTC) crypto market. Despite the mainland’s bans on crypto, the close relationship between China and Hong Kong suggests that the Chinese government may be becoming more open to digital assets or reversing its stance.
The report highlights Hong Kong’s position as the fifth-largest crypto transaction volume hub in East Asia between July 2022 and June 2023, receiving an estimated $64 billion in crypto. This figure is not far behind mainland China’s $86.4 billion received during the same period, despite Hong Kong having a significantly smaller population.
Recent developments have fueled speculation that the Chinese government sees Hong Kong as a testing ground for crypto initiatives. As a Special Administrative Region of China, Hong Kong has autonomy over many policy aspects, including cryptocurrency regulation.
Chainalysis also notes that Hong Kong’s active OTC market is evident in its breakdown of transaction volume by size. However, both mainland China and Hong Kong have unique breakdowns in the most-used crypto platform types, with a significant portion of activity happening through OTCs or informal peer-to-peer businesses.
China’s Crypto Ban
In September 2021, China implemented a ban on crypto transactions on the mainland. However, local courts in various regions have ruled that cryptocurrency should be considered property when it comes to ownership.
In contrast to the broader crackdown on crypto trading and mining in mainland China, Hong Kong has been welcoming crypto firms this year and even encouraging banks to work with them. The authorities in Hong Kong released policy statements in October 2022 to strengthen its position as a global financial center and introduced a licensing regime for virtual asset service providers in December.
Ethereum co-founder Vitalik Buterin cautioned crypto projects to consider the stability of crypto-friendliness before establishing a presence in Hong Kong.
Hot Take: China’s Shifting Stance on Crypto
The growing activity in Hong Kong’s OTC market and the Chinese government’s tolerance towards crypto initiatives in the region suggest a potential shift in China’s stance on digital assets. While mainland China maintains its ban on crypto transactions, Hong Kong serves as an intriguing testing ground for exploring the benefits and regulatory frameworks surrounding cryptocurrencies. As China continues to navigate its position on crypto, it remains to be seen how this evolving relationship with Hong Kong will impact the broader cryptocurrency landscape in the region.
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