Dylan Run started buying Bitcoin in early 2023, treating the cryptocurrency like gold when he realized other asset classes and Chinese stocks were declining.
Cryptocurrency trading and mining have been banned in China since 2021. Therefore, Run – currently the chief financial officer of a Shanghai-based company – uses bank cards issued by smaller rural banks to buy cryptocurrency on the black market. He limits transactions to a maximum of 50,000 yuan (nearly $7,000) per transaction to avoid attracting the attention of authorities.
"Bitcoin is a safe haven, like gold," Run explained. He currently owns 1 million yuan (approximately $141,000) worth of cryptocurrency, equivalent to nearly half of his portfolio. Stocks now account for 40% of his portfolio. Compared to three years ago, investments in cryptocurrency have surged, while investments in stocks have gradually declined.
Like Run, an increasing number of Chinese investors are seeking to acquire Bitcoin and other cryptocurrencies, believing them to be safer than stocks and real estate. These individuals operate within a gray area. Cryptocurrencies are banned in mainland China, and the country also strictly controls outbound money transfers, but people can still trade on exchanges like OKX or Binance, or through decentralized channels.
A transaction counter at a Crypto HK store in Hong Kong (China). Photo: Reuters
The slowdown in the Chinese economy "has made investments in mainland China risky and less attractive," said the director of a cryptocurrency exchange in Hong Kong. Some investors have opened accounts in Hong Kong, since the city began allowing cryptocurrency trading last year. "We see mainland investors entering the market almost every day," the director revealed.
The Chinese real estate market has been in crisis for nearly three years, causing house prices to fall. Real estate has traditionally been a form of investment and savings for households in the country.
Chinese stocks also had a less-than-optimistic start to the year. The CSI 300 index – comprising 300 large-cap stocks listed on the Shanghai and Shenzhen exchanges – is currently at half its level from the beginning of 2021.
Conversely, Bitcoin has increased in price by 50% since mid-October 2023. Currently, each coin is trading around $40,100. This cryptocurrency is also known for its significant price volatility.
As individual investors turn to cryptocurrencies, financial institutions don't want to be left behind. Recognizing declining growth opportunities in mainland China, many businesses are expanding into cryptocurrency-related ventures in Hong Kong.
"If a company operates in mainland China, and in the context of a declining stock market, weak IPO demand, and shrinking other segments, you need to find other growth drivers to report to shareholders," said the exchange director.
Bank of China's Hong Kong branch, China Asset Management (ChinaAMC), and Harvest Fund Management are both exploring business opportunities in Hong Kong in the digital asset sector.
According to the cryptocurrency data tracking platform Chainalysis, cryptocurrency-related activity in China is surging. The country's global ranking in terms of peer-to-peer (P2P) transaction volume rose to 13th last year. In 2022, China's ranking was 144th.
Despite the ban, the cryptocurrency market in China recorded transactions worth $86.4 billion between July 2022 and June 2023, significantly higher than Hong Kong, according to Chainalysis. Large transactions by individual investors ($10,000 to $1 million) accounted for over 6%, nearly double the global total.
The majority of cryptocurrency activity in China "is conducted through decentralized, informal, or peer-to-peer (P2P) channels," Chainalysis said in its report.
In Hong Kong, many shops have sprung up to serve as cryptocurrency trading hubs in busy shopping districts. These shops are subject to little regulation by authorities. For example, at Crypto HK, a cryptocurrency shop in Kin Chung district, customers can buy cryptocurrencies with a minimum purchase of HK$500 (US$64).
Charlie Wong, a 35-year-old stock analyst, also buys Bitcoin through Hashkey Exchange, a Hong Kong-licensed exchange. "It's hard to find opportunities in traditional sectors. Chinese stocks and other assets have been declining recently. The economy is undergoing a significant transition," he explained.
Wong believes that the Chinese government understands just how disruptive Bitcoin will be. They also see the potential of this digital currency, which is why they approved Bitcoin trading in Hong Kong. This will help China maintain its position in the booming cryptocurrency sector, which is also seen in many financial centers like Singapore and New York.
Chainalysis also suggests that recent developments may indicate "Chinese officials are gradually accepting cryptocurrencies, and Hong Kong is a testing ground for those efforts."
Ha Thu (according to Reuters)
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