In response to China’s economic downturn and a prolonged bearish trend in its stock market, Chinese investors are increasingly turning to cryptocurrencies as an alternative investment avenue. This shift reflects their perception of cryptocurrencies, particularly Bitcoin, as a safe haven asset akin to gold.
Creative approaches to access cryptocurrencies
Despite the cryptocurrency trading and mining ban enforced in China since 2021, resourceful Chinese investors are finding ways to gain exposure to digital assets. Many have resorted to using bank cards issued by small rural commercial banks to purchase cryptocurrencies through grey-market dealers, ensuring transactions stay below the radar with caps set at 50,000 yuan ($6,978).
Hong Kong’s crypto embrace
Hong Kong’s open endorsement of digital assets in the previous year has driven Chinese investors to utilize their annual forex purchase quotas, amounting to $50,000, to invest in cryptocurrencies within the territory. While Chinese regulations limit the use of these funds to overseas travel or education, crypto investments have become an enticing option.
Facing a sluggish stock market and diminishing demand for initial public offerings (IPOs), several Chinese financial institutions are venturing into crypto-related businesses in Hong Kong. This strategic move aims to provide a compelling growth story for shareholders and the board, offering a potential lifeline amidst economic challenges.
Accessible crypto market in mainland China
Surprisingly, access to cryptocurrencies within mainland China is not as challenging as the outright ban suggests. Online crypto exchanges like OKX and Binance continue to offer trading services to Chinese investors, directing them towards fintech platforms such as Ant Group’s Alipay and Tencent’s WeChat Pay to convert yuan into stablecoins for crypto transactions.
Crypto data platform Chainalysis reports a significant resurgence of crypto-related activities in China, catapulting its global ranking in peer-to-peer trade volume from 144th in 2022 to 13th in 2023. Despite the ban, between July 2022 and June 2023, the Chinese crypto market recorded an estimated $86.4 billion in raw transaction volume, outstripping Hong Kong’s $64 billion in crypto trading.
Thriving brick-and-mortar crypto exchange stores attract Chinese investors
Physical crypto exchange stores have emerged in Hong Kong’s bustling business districts, where customers can purchase cryptocurrencies with minimal requirements and documentation. One such store, Crypto HK, situated in the Admiralty district, allows customers to buy digital assets with a minimum investment of HK$500 ($64).
In addition to regulated channels, an underground crypto market thrives in China. Dealers like Michael Wang facilitate transactions that run into several million yuan or even tens of millions daily, indicating strong demand for cryptocurrencies. Chinese investors’ shift away from traditional assets, such as stocks and real estate, has accelerated due to poor performance. A crackdown on the property sector and a decline of 50% in the benchmark CSI 300 Index since early 2021 have eroded confidence in these traditional avenues.
Government’s balancing act
While the Chinese government maintains a strict stance on cryptocurrency activities within mainland China, the open endorsement of crypto trading in Hong Kong has not gone unnoticed. Some Chinese investors speculate that Chinese officials recognize the disruptive potential of cryptocurrencies and seek to maintain a foothold in the global crypto market by endorsing such activities in Hong Kong.
Chainalysis suggests that these developments indicate a possible warming of the Chinese government towards cryptocurrencies and that Hong Kong could be serving as a testing ground for these efforts. This shift, if realized, could have profound implications for the future of cryptocurrencies in China and beyond.
