Amid a prolonged downturn in China’s stock markets, Chinese investors are turning to unconventional avenues, with Bitcoin and other cryptocurrencies emerging as preferred safe-haven assets. The ban on crypto trading and mining in China has led investors to explore alternative routes, navigating through grey-market channels to access digital assets.
Economic Uncertainty Spurs Crypto Adoption
Dylan Run, a finance executive in Shanghai, exemplifies the growing trend. Concerned about the declining Chinese economy and stock markets, Run redirected a significant portion of his investments to cryptocurrencies in early 2023. Faced with crypto trading bans, investors like Run have resorted to using bank cards from small rural banks to make crypto purchases through grey-market dealers.
“Bitcoin is a safe haven, like gold,” says Run, highlighting the perceived stability of cryptocurrencies compared to traditional investment options.
Grey Areas and Creative Tactics
While China officially prohibits cryptocurrency trading and imposes strict controls on capital movement, investors navigate through grey areas. Cryptocurrencies like Bitcoin can still be traded on global exchanges such as OKX and Binance, or through over-the-counter channels. Mainland investors have also found ways to leverage overseas bank accounts for crypto investments.
Financial Institutions and Brokers Adapt
The surge in retail investors turning to cryptocurrencies has not gone unnoticed by financial institutions. Faced with limited growth opportunities domestically, Chinese brokers and financial entities are exploring crypto-related businesses, particularly in Hong Kong. Bank of China, China Asset Management, and Harvest Fund Management Co are among the entities eyeing digital asset ventures in the territory.
Rise in Crypto Activity Despite Bans
Despite the ban, China’s crypto market has witnessed substantial activity. Online exchanges like OKX and Binance still facilitate Chinese investors, guiding them to convert yuan into stablecoins for cryptocurrency trading. According to crypto data platform Chainalysis, China’s crypto-related activities have experienced significant growth, ranking 13th globally in peer-to-peer trade volume in 2023, up from 144th in 2022.
Thriving Underground Crypto Market
Offline crypto exchange stores have emerged in Hong Kong, where lightly regulated shops like Crypto HK allow customers to buy cryptocurrencies without extensive identity verification. Despite the ban, China’s crypto market recorded an estimated $86.4 billion in transaction volume between July 2022 and June 2023, overshadowing Hong Kong’s $64 billion in crypto trading during the same period.
Cryptocurrency as an Economic Hedge
The economic downturn in China, coupled with stringent regulations on traditional investments, has led to a shift in investor sentiment. Bitcoin’s notable surge of 50% since mid-October contrasts starkly with the struggles of China’s stock market and property sector. Investors like Charlie Wong, a buy-side equity analyst, see cryptocurrencies as a viable option amid a challenging economic landscape.
As Chinese investors seek refuge in the digital realm, the dynamics of the cryptocurrency market continue to evolve, with Hong Kong potentially serving as a testing ground for the broader acceptance of digital assets.
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Credit: Shanghai Newsroom