Chinese people rush to buy Bitcoin

Dylan Run bought Bitcoin in early 2023, treating the cryptocurrency like gold when he realized other assets and Chinese stocks were going down.

Cryptocurrency trading and mining have been banned in China since 2021. So Run, now a finance director at a Shanghai-based company, uses bank cards issued by small rural banks to buy cryptocurrencies on the black market, trading a maximum of 50,000 yuan (nearly $7,000) at a time to avoid attracting the attention of authorities.

“Bitcoin is a safe haven, like gold,” Run explains. He currently owns 1 million yuan (about $141,000) worth of cryptocurrencies, which is nearly half of his portfolio. Stocks now account for 40% of his portfolio. Compared to three years ago, cryptocurrency investment has skyrocketed, while stock investment has declined.

Like Run, a growing number of Chinese investors are looking to own Bitcoin and other cryptocurrencies, believing they are safer than stocks and real estate. These people operate in a gray area. Cryptocurrencies are banned in mainland China, and the country also strictly controls money transfers abroad, but people can still trade on exchanges like OKX or Binance, or through decentralized channels.

A trading counter at a Crypto HK store in Hong Kong (China). Photo: Reuters — A trading counter at a Crypto HK store in Hong Kong (China). Photo: *Reuters*

China’s economic slowdown “has made mainland investments less attractive and risky,” said the head of a Hong Kong-based cryptocurrency exchange. Some investors have opened accounts in Hong Kong, where the city began allowing cryptocurrency trading last year. “We see mainland investors entering the market almost every day,” the head said.

China’s real estate market has been in crisis for nearly three years, causing housing prices to fall. Real estate is a traditional investment and savings channel for households in this country.

Chinese stocks also had a less-than-optimistic start to the year. The CSI 300 index, which tracks 300 large stocks listed in Shanghai and Shenzhen, is now half what it was at the start of 2021.

Bitcoin, on the other hand, has increased in price by 50% since mid-October 2023. Currently, each coin is trading around $40,100. This cryptocurrency is also famous for its large price fluctuations.

As retail investors turn to cryptocurrencies, financial institutions don’t want to be left behind. Seeing the lack of growth opportunities on the mainland, many companies are opening up their cryptocurrency-related businesses in Hong Kong.

"If a company operates in the mainland, in the context of a falling stock market, weak IPO demand and shrinking other sectors, 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 all exploring the possibility of doing business in Hong Kong in the digital assets sector.

Cryptocurrency data tracking platform Chainalysis says crypto-related activity in China is surging. Its global ranking in terms of peer-to-peer (P2P) trading volume rose to 13th last year. In 2022, it will be 144th.

Despite the ban, China’s cryptocurrency market still recorded $86.4 billion worth of transactions between July 2022 and June 2023, much higher than Hong Kong, according to Chainalysis. Large transactions by individual investors ($10,000 to $1 million) accounted for more than 6%, nearly double the global figure.

The majority of cryptocurrency activity in China “is conducted through decentralized, informal, or peer-to-peer (P2P) channels,” Chainalysis said in the report.

In Hong Kong, many shops have opened to trade cryptocurrencies on busy shopping streets. These shops are subject to little regulatory oversight. For example, at Crypto HK, a cryptocurrency shop in the Admiralty district, customers can buy cryptocurrencies with a minimum of 500 Hong Kong dollars ($64).

Charlie Wong, a 35-year-old stock analyst, also bought 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 down recently. The economy is going through a major transition,” he explained.

Wong believes the Chinese government understands how disruptive Bitcoin can be. They also see the potential of this digital currency, which is why they have approved Bitcoin trading in Hong Kong. This will help China stay in the cryptocurrency space that is booming in many financial centers, such as Singapore and New York.

Chainalysis also said that recent developments may indicate that “Chinese authorities are gradually embracing cryptocurrencies, and Hong Kong is a testing ground for those efforts.”

Ha Thu (according to Reuters)

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