Eastern Asia is the fourth-largest cryptocurrency market, having received US$777.5 billion worth of cryptocurrency between July 2021 and June 2022, representing just under 13 per cent of global transaction volume during that time period.

Eastern Asia has lost ground to other regions this year, having ranked as the third biggest region by transaction volume at last year’s Geography of Cryptocurrency Report. The region saw year-over-year transaction volume growth of just four per cent, by far the lowest of any region.

The biggest reason for this is likely the decline in cryptocurrency activity in China, the largest market in the region.

While it remains the biggest cryptocurrency market in the region, China saw its cryptocurrency transaction volume fall by 31 per cent compared to the previous year-long period; even neighbours like Japan more than doubled transaction volume.

As we’ll explore in more detail later, this is likely due to Chinese government crackdowns on cryptocurrency activity over the last year. 

Also Read: A look into the Chainalysis 2022 geography of cryptocurrency report

The data also shows that Eastern Asia has surprisingly low DeFi adoption. In fact, over the year-long time period we studied, DeFi made up just 28 per cent of transaction volume in Eastern Asia, less than all but one other region.

Below, we’ll explore these trends and more as we dive into what makes Eastern Asia’s crypto market tick.

DeFi drives outsized growth in Japan

As noted above, Japan’s cryptocurrency market has grown substantially over the year-long period studied, with on-chain transaction volume increasing 113.2 per cent over the previous 12 months, compared to 72 per cent for the next-closest country, 13.2 per cent for South Korea, and 31.1 per cent contraction for China. Why might this be? One reason could be Japan’s comparatively high embrace of DeFi. 

Despite having a smaller overall cryptocurrency market, Japan’s DeFi transaction volume is nearly double the size of South Korea’s at US$56.7 billion and close to China’s total of US$67.6 billion.

Chainalysis’ Tokyo-based Advisory Solutions Architect Hayato Shigekawa shared that “DEX trading has become very popular in Japan,” citing the importance of platforms like Uniswap, 1inch, and TokenIon in the country. He also discussed the popularity of NFTs in Japan, and the possibility of their future growth.

“Many have pointed out that Japan has lots of quality IP from anime, comics, and video games, which could be utilised in Web3 in the future.” Chainalysis data confirm that these services have played a big role in Japan’s DeFi market.

Interestingly, off-chain spot trading data released by the ​​Japan Virtual and Crypto assets Exchanges Association (JVCEA) suggests that DEX trading may be eating into trading on centralised services, which haven’t seen similar growth.

Also Read: From Moonshining to Shining – Story of Bobby Ong’s crypto data aggregator, CoinGecko

The reported trade volume on Japanese exchanges is lower than in 2020 and 2021, while the year-over-year creation of new accounts is between 30 per cent and 40 per cent in most months. One reason trading volume has shifted from centralised exchanges to DEXes could be the latter’s greater number of assets on offer.

“Centralised exchanges in Japan support roughly 60 crypto assets, and the process to list new coins is lengthy and rightly regulated,” said Hayato. Hayato also pointed out that, as of now, that list of available crypto assets includes no stablecoins. Given that, it’ll be interesting to see how Japan’s usage of DeFi changes as regulations evolve.

China’s market remains among the world’s strongest despite government bans

As discussed above, China has seen a large dropoff in cryptocurrency activity, likely due to government crackdowns. The Chinese government started by banning mining in May 2021, and by September moved further to ban all cryptocurrency transaction activity. “Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China (PBOC) said in an unambiguous statement. 

Still, despite a 31.1 per cent dropoff in transaction volume, China remains the biggest cryptocurrency market in the region, the fourth overall in the world, and ranked tenth for grassroots adoption on our Global Crypto Adoption Index.

Plus, trading activity has even picked up in recent months. That hardly seems to reflect the total ban announced or the harsh words from PBOC officials that came along with it. 

Even mining, the first crypto activity targeted by the Chinese government and saw a huge dropoff following the ban, has made a comeback in China. That’s especially surprising given that you’d expect it to be easier for the government to pinpoint the increased power usage indicative of mining and take action.

The data suggests that in China, the anti-establishment ethos of cryptocurrency’s early days remains intact. While government crackdowns have had an effect, China’s cryptocurrency market remains strong, with healthy transaction volumes across both centralised and DeFi services. 

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