East Asia ranks as the fifth most active cryptocurrency market globally, accounting for 8.8% of total crypto activity between July 2022 and June 2023, according to Chainalysis. While smaller in institutional influence compared to Western markets, the region shows a strong inclination toward decentralized finance (DeFi) — particularly when contrasted with regions like the Middle East, North Africa, and Latin America of similar market size.
Despite this potential, overall crypto activity in East Asia has declined in recent years. Back in 2019, the region was a global leader in blockchain innovation and trading volume, largely driven by mainland China’s booming crypto exchanges and mining operations. However, a series of strict regulatory crackdowns — including the People’s Bank of China declaring all cryptocurrency transactions illegal in 2021 — significantly dampened domestic market participation.
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Yet, amid this regulatory chill, Hong Kong has emerged as a beacon of innovation and openness. With proactive policies and strategic positioning, it is reshaping the regional crypto landscape and sparking renewed interest in digital assets across the continent.
Hong Kong’s Strategic Shift Toward a Crypto-Friendly Ecosystem
Over the past few years, Hong Kong has taken deliberate steps to establish itself as a leading hub for digital assets. From launching regulated retail crypto trading frameworks to welcoming institutional-grade platforms, the city is building a robust infrastructure that supports both innovation and compliance.
Data reveals that Hong Kong recorded **$64 billion in crypto transaction volume** from July 2022 to June 2023 — a remarkable figure considering its population is just 0.5% of mainland China’s. Even more telling is the fact that this volume represents a significant portion of regional activity, especially when compared to mainland China’s $86.4 billion during the same period.
What drives such high transaction levels? The answer lies largely in Hong Kong’s thriving over-the-counter (OTC) market.
OTC trading allows high-net-worth individuals and institutions to conduct large-scale transactions privately, avoiding market slippage and maintaining confidentiality. In Hong Kong, transactions exceeding $10 million make up a disproportionately large share of total volume — far more than in neighboring markets like Japan or South Korea.
This institutional tilt sets Hong Kong apart from other East Asian economies where retail investors dominate. It also highlights the city’s role as a gateway for cross-border capital flows, especially for users seeking alternatives to traditional banking systems.
Regional Differences in Platform Preferences and Market Behavior
When examining platform usage across East Asia, distinct patterns emerge — shaped by regulation, public sentiment, and historical events.
Japan: Balanced Adoption Between CeFi and DeFi
Japan mirrors global trends, with nearly equal distribution between centralized exchanges (CeFi) and decentralized finance (DeFi) protocols. Regulatory clarity and early adoption have allowed both sectors to grow in tandem, fostering a mature and diversified market.
South Korea: Dominance of Centralized Exchanges
In contrast, 68.9% of South Korea’s crypto activity occurs on centralized platforms. DeFi usage remains limited — a legacy of the TerraUSD (UST) and Luna collapse in 2022, which devastated many Korean investors.
The fallout led to stricter oversight: exchanges must now maintain reserve funds and undergo regular audits. While these measures increased trust in CeFi platforms, they also damaged public confidence in DeFi — slowing broader decentralized innovation.
Mainland China & Hong Kong: OTC and P2P as Workarounds
Due to mainland restrictions, much of the crypto activity in China occurs through unofficial channels — including peer-to-peer (P2P) networks and gray-market OTC desks. These informal mechanisms allow users to bypass bans while still accessing digital assets.
Hong Kong, though part of China, operates under a separate legal framework that grants it substantial autonomy — especially in financial regulation. This unique status enables it to serve as a testing ground for blockchain-friendly policies without directly challenging national rules.
Real-World Use Cases Driving Crypto Adoption in Hong Kong
Two key figures in Hong Kong’s crypto scene — Merton Lam of Crypto HK and Dave Chapman of OSL Digital Securities — shed light on what’s fueling demand.
Both emphasize that adoption is being driven not by speculation alone, but by practical applications:
- Wealth preservation: Users from countries with unstable economies or strict capital controls use crypto to move value across borders securely.
- Institutional investment: Banks, private equity firms, and family offices are increasingly allocating to Bitcoin and Ethereum as part of diversified portfolios.
- Interest in altcoins: While BTC and ETH remain dominant, there's growing curiosity around niche projects and emerging tokens.
Merton shared insights from his client base: “We see Russians, Ukrainians, Southeast Asians — ordinary people trying to protect their savings. They come to Hong Kong because it offers access and reliability.”
Chapman echoed this sentiment: “Digital assets aren’t going away. Institutions aren’t waiting anymore — they’re building strategies now.”
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Cross-Border Payments and Geopolitical Implications
Beyond investment and wealth transfer, crypto is gaining traction in international business payments.
As Merton explains: “Sending stablecoins to suppliers in South Asia or Africa takes minutes, not days. SWIFT transfers are slow and expensive — crypto solves that.”
This efficiency isn’t just about convenience. For Chinese enterprises, reducing reliance on the U.S. dollar and the SWIFT system is a strategic priority. The rise of China’s digital yuan (e-CNY) reflects this broader goal: to strengthen financial sovereignty and reduce exposure to Western sanctions.
While central bank digital currencies (CBDCs) differ from decentralized cryptocurrencies, both contribute to a multipolar financial future — one where alternative payment rails challenge dollar dominance.
Thus, even if mainland China maintains its ban on speculative crypto trading, its continued support for blockchain R&D suggests a nuanced stance — open to technology, cautious about volatility.
Is Hong Kong a Testbed for China’s Crypto Future?
The rapid development of Hong Kong’s regulated crypto ecosystem raises an important question: Is this a signal of shifting attitudes in Beijing?
Chapman notes: “Hong Kong becoming a crypto hub doesn’t mean mainland policy will change overnight.” However, he points out that state-backed entities are already investing in Web3 startups based in Hong Kong — an indirect way to explore digital assets without relaxing domestic restrictions.
This dual-track approach allows China to:
- Maintain control over capital flows within its borders
- Monitor real-world applications of blockchain through Hong Kong’s sandbox environment
- Prepare for potential future integration of tokenized assets
In essence, Hong Kong may be serving as a policy laboratory — one where innovation can thrive under supervision.
Frequently Asked Questions (FAQ)
Q: Why is Hong Kong allowed to have crypto while mainland China bans it?
A: Hong Kong operates under the “One Country, Two Systems” principle, giving it independent authority over financial regulation. This autonomy enables it to adopt crypto-friendly policies even as the mainland enforces strict prohibitions.
Q: How does OTC trading work in Hong Kong?
A: OTC desks facilitate large trades directly between buyers and sellers without using public order books. This ensures privacy and minimizes market impact — ideal for institutional players.
Q: Can mainland Chinese citizens use Hong Kong crypto services?
A: Technically, they can access services physically or through certain channels, but moving funds across borders remains subject to capital controls. Many rely on P2P or informal networks to participate indirectly.
Q: Is DeFi growing in East Asia?
A: Growth is uneven. Japan shows balanced CeFi/DeFi adoption, while South Korea lags due to regulatory caution post-Terra crash. Hong Kong is seeing gradual DeFi experimentation under regulated frameworks.
Q: Will China ever lift its crypto ban?
A: A full reversal is unlikely soon. However, selective relaxation — especially around blockchain infrastructure or tokenized assets — could emerge via Hong Kong pilots.
Q: What makes Hong Kong attractive to global crypto firms?
A: Clear licensing rules, English-speaking legal system, deep financial talent pool, and proximity to mainland markets make it a strategic gateway for Asia expansion.
Final Outlook: A New Chapter for Digital Assets in Asia
Hong Kong’s resurgence as a crypto hub marks a pivotal moment for East Asia. Though mainland China’s restrictions have cooled regional momentum, Hong Kong’s policy agility and market sophistication are reigniting interest.
With strong OTC volumes, growing institutional participation, and real-world utility in payments and wealth management, the city is proving that regulated innovation can coexist with financial stability.
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While it remains too early to predict nationwide changes in China’s stance, Hong Kong’s trajectory offers a compelling blueprint: one where blockchain technology advances not through defiance, but through structured experimentation.
For global investors, developers, and policymakers alike, the message is clear — the next chapter of crypto in Asia is being written in Hong Kong.