Chainalysis: Hong Kong and China's OTC Markets Thriving Amid Crypto Winter

Hong Kong, despite its smaller population, maintained an active over-the-counter (OTC) crypto market that generated $64 billion in volume in the past year, coming close to China’s $86.4 billion, all while enduring the global crypto market’s downturn.

Recent data highlights a drop in the value of crypto transactions in both Hong Kong and China over the past year due to Beijing’s unrelenting prohibition on crypto assets and the crypto market’s extended period of decline. However, Chainalysis suggests that the presence of substantial OTC markets in the region, and their relative stability despite regional and global challenges may indicate a certain level of tolerance from Beijing towards cryptocurrencies.

A new report from @chainalysis shows that Hong Kong and China's OTC markets remain active despite crypto winter.@thesamreynolds reportshttps://t.co/fxcw19vZb0
— CoinDesk (@CoinDesk) October 2, 2023

Chainalysis remarked, “The increasingly close relationship between China and Hong Kong leads some to speculate that Hong Kong’s growing status as a crypto hub may signal that the Chinese government is reversing course on digital assets, or at least becoming more open to crypto initiatives,” in its latest report.

In terms of large institutional crypto transactions, Hong Kong dominates compared to other Asian regions. Chainalysis data reveals that 46.8% of Hong Kong’s annual crypto trades involve institutional transactions exceeding $10 million, while retail trades under $10,000 account for just 4% of the city’s crypto volume—only slightly below the global average of 4.7%.

In contrast, South Korea relies heavily on retail trading on centralized exchanges, with “professional” traders engaging in transaction volumes ranging from $10,000 to $1 million constituting 40% of the total volume.

Despite the challenging crypto market conditions and Beijing’s stringent stance on cryptocurrencies, Hong Kong’s thriving OTC market and the dominance of large institutional transactions suggest that the region may hold the key to a potential shift in China’s approach to digital assets. The data indicates that the crypto industry’s resilience and adaptability continue to shape its trajectory, even during a crypto winter.