China's cryptocurrency trading and mining ban has not stopped local investors from flocking to the crypto market. Despite the ban, these investors are turning to digital assets to escape the economic downturn that is plaguing traditional investments such as stocks and real estate.
According to a Portal report, Chinese are finding “creative” ways to participate in the crypto market using gray market traders, overseas bank accounts and Hong Kong’s support of digital assets.
Chinese investors are defying the regulations
A perfect example of the new way Chinese investors are investing in cryptocurrencies is Dylan Run, a Shanghai-based financial sector manager who began diversifying his investments into cryptocurrencies in early 2023.
Recognizing the decline of the Chinese economy and stock market, Run viewed the largest cryptocurrency by trading volume, Bitcoin (BTC), as a safe haven, similar to gold.
According to Portal, Run currently holds about 1 million yuan ($140,000) worth of cryptocurrencies, making up half of its investment portfolio, compared to just 40% in Chinese stocks. While the Chinese stock market has declined over the past three years, Run's investments in digital assets have increased by 45%.
Although cryptocurrency trading is officially banned in mainland China, investors continue to trade tokens such as Bitcoin on exchanges such as OKX and Binance.
Portal reports that investors are also using over-the-counter (OTC) channels and opening bank accounts abroad to gain access to the banned digital asset market. Additionally, Chinese citizens are using their $50,000 annual foreign exchange purchasing quota to transfer funds to Hong Kong accounts, taking advantage of the open support of digital assets in the region.
As retail investors turn to cryptocurrencies, China's brokers and financial institutions in Hong Kong are also venturing into the cryptocurrency business. With limited growth opportunities at home, these companies are exploring new ways to keep shareholders and boards happy amid a sluggish stock market and weak demand for initial public offerings, the report said.
Well-known institutions such as Bank of China, China Asset Management (ChinaAMC) and Harvest Fund Management Co. are reportedly exploring digital asset business in Hong Kong.
Informal peer-to-peer crypto trading is thriving
According to the report, the country's estimated pure transaction volume of $86.4 billion between July 2022 and June 2023 exceeded Hong Kong's digital trading volume of $64 billion. Large retail transactions worth $10,000 to $1 million accounted for nearly twice the global average.
Data service provider platform Chainalysis highlights that much of China's digital asset activity occurs through informal peer-to-peer “gray market” or over-the-counter transactions.
Brick-and-mortar digital exchanges offering “lightly regulated” services have emerged in Hong Kong. These offline stores like Crypto HK allow customers to purchase cryptocurrencies with minimal requirements and without presenting any identification documents.
China's crackdown on the real estate sector and a weak stock market have undermined confidence in traditional investments. Falling real estate prices and the 50% decline in the CSI 300 index since the start of 2021 have pushed investors to turn to alternative investments.
The report particularly highlights Bitcoin's recent 50% surge since mid-October, which has attracted investors looking for opportunities amid the country's economic transformation.
Overall, Chinese investors, driven by the economic downturn and seeking refuge from traditional investments, are using creative methods to participate in the digital asset market. Despite regulatory restrictions, the appeal of cryptocurrencies remains, and financial institutions are also exploring crypto-related businesses.
The 1-day chart shows BTC's sideways price movement below $40,000 in the last 24 hours. Source: BTCUSDT on TradingView.com
Featured image from Shutterstock, chart from TradingView.com