㊌ The U.S. still leads, China is a mystery, Hong Kong is reclaiming lost ground
BlockchainAsia #43
Hello from Coco Kee.
I want to wish you and your family a Happy Thanksgiving and thank you for your continuous support of BlockchainAsia!
In this issue of BlockchainAsia, I want to spotlight Chainalysis’ latest annual report “The 2023 Geography of Cryptocurrency Report”. Here is the full report.
My takeaways are four:
Although the U.S. remains the largest market, its trend is downward sloping. In the U.S., like other developed economies, institutional adoption is the main growth driver.
The fastest adoption comes from the grassroots of the lower-middle income countries, e.g. India, Nigeria, and Ukraine.
Watch out for Central & Southern Asia and Oceania (CSAO). 6 out of the top 10 countries on Chainanalysis’ Global Crypto Adoption Index are from CSAO. They are India, Vietnam, Philippines, Indonesia, Pakistan and Thailand.
Mainland China’s crypto market is far from dead; on the contrary, its prospects are potentially significantly undervalued; Hong Kong has the potential to reclaim its previous crypto hub status if it executes. Mainland China and Hong Kong may become more integral in Web3.
Points 1, 2, and 3 are straightforward. See the chart below.
I want to dive into Point 4 and explain why I think
“Mainland China’s crypto activities are far from dead, on the contrary, the transaction is potentially undervalued; Hong Kong has the potential to reclaim its previous crypto hub status if it executes. Mainland China and Hong Kong will become more integral in Web3”.
Mainland China’s outright ban on crypto trading was expected to suppress trading volume. The question arises, where does the $86.4B come from? My recent discussion with some Chinese suggests that some functioning exchanges still exist in the country and that it’s not uncommon for people to have trading accounts with overseas exchanges.
How about the transactions on major Chinese exchanges that had to move outside of China due to the clampdown in 2021? On August 2, the Wall Street Journal reported that Mainland China’s users traded $9.4B spot and $80.68B futures in a single month (May 2023) on Binance, not including the data of other exchanges such as Huobi. I doubt Chainalaysis is able to reflect this reality in its annual report.
For a place with only a 7.5M population, Hong Kong’s $64B transaction value is impressive. By comparison, Taiwan’s population is 23.9M, Mainland China 1.4B.
Hong Kong has a strong case to ensure Mainland China’s continuous support for its efforts in Web3, which will not only benefit Hong Kong but also Mainland China:
Reconciling with the reality that Chinese investors have still been actively trading on various exchanges in spite of the ban, Mainland China welcomes Hong Kong’s initiative to create a regulated environment for crypto trading, mitigating the central government’s concern about potential social instability risks caused by malicious actors or market volatility.
In the face of increasing competition from other Asian jurisdictions, it is not in the interest of either Hong Kong or Mainland China to see Web3 entrepreneurs and capital flee to Singapore and other countries. Plus Hong Kong was a crypto hub with such major exchanges as Bitmex, OKCoin, Huobi, FTX, and Binance either headquartered or at one time very active there.
Meanwhile, Hong Kong’s efforts to attract startups to Hong Kong could help encourage more tech talent in Mainland China to transition into Web3 and welcome talent and capital that have scattered to other countries to return to Hong Kong or Mainland China.
Hong Kong’s role in the development of Web3 reminds me of Shenzhen, which once served as an experimental ground for Deng Xiaoping’s policies that eventually led to China’s opening to the world and the transformation of its economy.
Key hurdles Hong Kong has to overcome?
I see two critical ones. First, it lacks the necessary infrastructure to support a rapid buildup of the Web3 ecosystem. Second, there is skepticism regarding to what extent Mainland China will allow the Hong Kong administration to freely develop the Web3 ecosystem and economy.
Despite the challenges, I am cautiously bullish about Hong Kong’s ascent into a leading crypto hub in Asia.
Thank you for reading,
Coco
I am Coco Kee, Co-founder of Kee Global Advisors and author of BlockchainAsia. More than 3 years ago, I started following innovations and developments in Asia’s blockchain, digital & crypto assets with the belief that this industry is inherently global and Asia is the other side of the coin. BlockchainAsia keeps readers informed of the latest developments and opportunities in Asia, a unique platform to showcase emerging Asian startups and VC funds.
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The curated content is selective and serves as information and contains personal views only, not investment advice.