Chainalysis has published a report on the impact of recent cryptocurrency developments in Hong Kong on China and may herald more positive signals from Asia.
The report stated that cryptocurrency activity has decreased significantly due to bans in China, but developments in Hong Kong may reverse this.
Last year, Hong Kong took important steps towards becoming a cryptocurrency center and initiated cryptocurrency trading in the country with a series of legal regulations.
Hong Kong is defined as a Special Administrative Region of China. This means it has autonomy on many policies, including cryptocurrencies. Considering the growing relationship between China and Hong Kong, it is considered that Hong Kong can be a bridge between China and cryptocurrencies.
“The increasingly close relationship between China and Hong Kong, and Hong Kong's growing status as a crypto hub, suggests that the Chinese government may be reversing its approach to digital assets, or at least becoming more open to crypto.”
The report stated that Hong Kong could be a testing ground for China and that even Chinese state-owned enterprises have launched crypto-focused investment funds in Hong Kong.
“China's relationship with cryptocurrency has been one of the most interesting and difficult to follow stories in the industry over the past few years. The country was home to one of the most active crypto markets in the world as recently as 2020, leading all countries in Bitcoin mining by a wide margin. However, with the Chinese government declaring almost all crypto activities illegal in 2021, it has finally begun to crack down on cryptocurrency.
However, recent developments have increased speculation that the Chinese government is open to cryptocurrency and that Hong Kong could be a testing ground for these efforts. Hong Kong already hosts a large, OTC-focused crypto market. Hong Kong also implemented rules allowing retail crypto trading over the past year. “Chinese state-owned enterprises have also been seen launching crypto-focused investment funds and collaborating with local crypto businesses.”
In the conclusion of the report, it was stated that the developments in Hong Kong may have a significant impact on the Chinese government's attitude towards cryptocurrencies and that the cryptocurrency ecosystem may be pregnant with important developments originating from Asia.