Hong Kong's Stablecoin Crackdown: Trading Implementation Reshapes Market Dynamics as OTC Volume Plummets

Following the enforcement of Hong Kong’s stablecoin regulations on August 1st, the city’s over-the-counter market has experienced a sharp contraction. According to Bitrace’s data monitoring, OTC trading volume collapsed by over 32% within just seven days of the regulatory framework taking effect.

The impact on fund flows proved even more severe. Merchants operating on the platform witnessed a dramatic 43.20% decline in average daily USDT transfers to their addresses. For non-merchant accounts, the reduction stood at 30.65%, signaling that both institutional and retail participants have significantly curtailed their OTC trading activity in response to the new regulatory environment.

The trading implementation has triggered a bifurcation in market participant behavior. Some market operators have moved to formalize their operations by applying for the necessary licenses under the new framework. Conversely, others have chosen to circumvent regulation entirely, shifting their operations to unregulated channels and private channels outside official oversight.

This regulatory shift highlights the tension between compliance and market continuity in Hong Kong’s cryptocurrency ecosystem. While the stablecoin regulations aim to enhance consumer protection and systemic stability, the immediate market response reveals the challenges of balancing strict oversight with operational viability for legitimate market participants.