In the face of a prolonged economic downturn and a lacklustre performance in the stock markets, Chinese investors are turning to unconventional avenues to protect their assets, with Bitcoin emerging as an unexpected safe haven, according to Reuters. Dylan Run, a finance executive based in Shanghai, shifted a portion of his funds into cryptocurrencies in early 2023 as he witnessed the Chinese economy grappling with challenges and stock markets on a three-year downward spiral.
Cryptocurrency trading and mining have been banned in China since 2021. However, resourceful investors like Run have found alternative methods to navigate this prohibition. Using bank cards from small rural commercial banks, Run executed transactions capped at 50,000 yuan ($6,978) through grey-market dealers, avoiding undue scrutiny. He defends his move, stating, “Bitcoin is a safe haven, like gold.” Currently, Run holds approximately 1 million yuan worth of cryptocurrencies, constituting half of his investment portfolio, while his Chinese equities make up just 40%, reflecting the growing trend among Chinese investors.
The unconventional methods employed by investors like Run operate within a legal grey area. While mainland China strictly prohibits cryptocurrency activities and imposes capital movement restrictions, individuals manage to trade tokens such as Bitcoin on global crypto exchanges like OKX and Binance, or through over-the-counter channels. Additionally, mainland investors are opening overseas bank accounts, especially in Hong Kong, leveraging the $50,000 annual Forex purchase quotas for purposes such as overseas travel or education, and covertly channelling funds into cryptocurrency investments.
The economic downturn in China is a significant driver behind this surge in cryptocurrency adoption. A senior executive from a Hong Kong-based cryptocurrency exchange notes, “China’s economic downturn has made investment on the mainland risky, uncertain, and disappointing, so people are looking to allocate assets offshore.” The sentiment echoes among many Chinese investors who seek alternative investment opportunities as the stock and property markets at home continue to lose their appeal.
As retail investors flock to cryptocurrencies, Chinese brokers and financial institutions are not far behind. Facing challenges such as a sluggish stock market and weak demand for initial public offerings (IPOs), many are exploring crypto-related businesses in Hong Kong as a strategic growth story to present to shareholders and boards.
Surprisingly, access to Bitcoin remains relatively accessible in mainland China. Despite the ban, online crypto exchanges like OKX and Binance continue to offer trading services for Chinese investors, guiding them to use popular fintech platforms like Ant Group’s Alipay and Tencent’s WeChat Pay for transactions. According to crypto data platform Chainalysis, China’s crypto-related activities have surged, with the country ranking 13th globally in terms of peer-to-peer trade volume in 2023, a significant leap from 144th place in 2022.
The estimated $86.4 billion in raw transaction volume in the Chinese crypto market between July 2022 and June 2023 surpasses Hong Kong’s $64 billion in crypto trading during the same period, indicating a thriving underground crypto market in mainland China. Chainalysis suggests that much of this activity takes place through over-the-counter and informal grey-market peer-to-peer businesses.
Hong Kong, with its open endorsement of digital assets, has become a haven for Chinese citizens looking to invest in cryptocurrencies. Major financial institutions, including the Hong Kong subsidiaries of Bank of China, China Asset Management (ChinaAMC), and Harvest Fund Management Co, are exploring opportunities in digital asset businesses.
The demand for cryptocurrencies in China is further underscored by the struggles in traditional markets. The three-year crackdown on the property sector has resulted in plummeting home prices, traditionally a cornerstone of household savings. Simultaneously, the benchmark CSI 300 Index has lost half of its value since early 2021. In contrast, Bitcoin has experienced a 50% surge since mid-October, exhibiting its characteristic volatility.
Charlie Wong, a buy-side equity analyst, highlights the challenges in finding opportunities in traditional fields, asserting, “Chinese stocks and other assets perform poorly… the economy is undergoing a crucial transition.” Wong, who purchased Bitcoin through the Hashkey Exchange in Hong Kong, speculates that Chinese officials are aware of the disruptive potential of Bitcoin and, simultaneously, its significant opportunities. The endorsement of crypto trading in Hong Kong might be an effort to maintain a foothold in the flourishing crypto business hubs like Singapore and New York.
Chainalysis suggests that these developments have led to speculation about the Chinese government warming up to cryptocurrencies, with Hong Kong potentially serving as a testing ground for broader efforts in the future. As Chinese investors continue to seek refuge in Bitcoin amid economic uncertainties, the cryptocurrency landscape in the region looks set for further growth.
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