As the Chinese economy struggles, local investors are looking for opportunities to buy cryptocurrency as traditional store of value instruments perform poorly
A top manager from the financial sector in Shanghai, Dylan Ran, told reporters that he began transferring some money into digital assets at the beginning of the year, when he realized that the Chinese stock market was “going downhill.”
“Bitcoin is a safe haven investment similar to gold,” he said.
Beijing has introduced a de facto ban on cryptocurrency trading in the country in 2021. Digital asset traders face fines and even imprisonment.
The ban didn't work
However, this did not deter many investors. Earlier, the WSJ talked about the thriving underground crypto market in China and the methods by which traders circumvent restrictions. According to the publication, they include the use of VPN services, contacts on social networks and face-to-face transactions.
Ran added details to this picture. He used cards from small provincial commercial banks to purchase cryptocurrency from gray dealers. To avoid control, transaction amounts did not exceed 50,000 yuan ($6,978).
According to the investor, he owns cryptocurrencies worth 1 million yuan ($139,560). Digital assets make up about half of his portfolio versus 40% for Chinese stocks.
Reuters confirmed that exchanges like OKX and Binance are still offering services to Chinese users. The platforms help convert yuan into stablecoins for trading cryptocurrencies through electronic payment services Alipay and WeChat Pay.
Hong Kong as one of the loopholes for crypto investments
Users from the country also open accounts in foreign banks for this purpose, using an annual limit on the purchase of foreign currency in the equivalent of $50,000. According to the rules, these funds can only be used for tourism and education.
Following the open approval of digital assets in Hong Kong in 2023, Chinese citizens began to use this quota to transfer money into cryptocurrency across the jurisdiction.
“The economic downturn in China has made investing on the mainland risky, uncertain and frustrating, so people are looking to place assets offshore,” said a local crypto exchange executive who spoke on condition of anonymity.
The platform is seeing an influx of new retail Chinese investors almost every day, he said.
Against this background, financial institutions from the mainland began to show interest in crypto business.
“If you're a Chinese brokerage facing a weak stock market, weak IPO demand and shrinking other businesses, you need a growth story to show to shareholders and the board,” the manager explained.
Local subsidiaries Bank of China, China Asset Management (ChinaAMC) and Harvest Fund Management are exploring opportunities in the digital asset space.
Beijing's tacit support for crypto initiatives?
According to Chainalysis, the annual volume of cryptocurrency transactions in China amounted to $86.4 billion, in Hong Kong - $64 billion, although the population of the autonomous region does not exceed 0.5% of the total population of the country. The analyst firm noted that on the mainland, activity is focused “on the over-the-counter market and informal gray market P2P platforms.”
In Hong Kong, in addition to licensed trading platforms, there are offline stores for exchanging cryptocurrencies right in the business center. This area is practically unregulated. One of the most popular, Crypto HK, allows customers to buy cryptocurrency for as little as HK$50 ($64) without any KYC checks.
Equity analyst Charlie Wong, who invested in Bitcoin through the licensed Hong Kong exchange HashKey, confirmed:
“It's hard to find opportunities in traditional areas. Chinese stocks and other assets are performing poorly and the economy is going through a critical transition period.”
China's crackdown on the property sector over the past three years has led to a fall in house prices, which have traditionally been the basis for household savings. Things are even worse in the stock market, with the benchmark CSI 300 index down by half since the start of 2021.
Wong believes Chinese officials are realizing how “disruptive” Bitcoin can be to the traditional financial system, recognizing the cryptocurrency's innovative potential. In his opinion, the Chinese authorities are encouraging crypto business in Hong Kong in order to maintain a “foothold” in the industry along with recognized centers like Singapore or New York.
At the beginning of 2023, Bloomberg journalists reported that Beijing was providing tacit support to the authorities of the autonomous region in their quest to create a crypto hub.
However, the head of the manager of digital asset-oriented investment funds in the CPIC jurisdiction, Shan Zhong, believes that the central government has not changed its strict anti-cryptocurrency position.
Blockchain gaming operator Animoca Brands co-founder Yat Siu expressed confidence that the rapid adoption of Web3 initiatives in Hong Kong is a sign of some “big steps” coming from mainland China.
