China’s ban on cryptocurrency trading and mining has not stopped local investors from entering the crypto market. In response to the ban, these investors are turning to digital assets as an escape from the economic downturn affecting traditional investments like stocks and real estate.
According to a Reuters report, Chinese individuals are finding “creative” ways to take part in the crypto market, such as utilizing grey-market dealers, overseas bank accounts, and Hong Kong’s support of digital assets.
Chinese Investors Defy Regulations
An example of new approaches to crypto investment by Chinese investors is Dylan Run, a financial sector executive based in Shanghai, who diversified his investments into cryptocurrencies at the beginning of 2023.
Recognizing the decline in the Chinese economy and stock market, Run saw the largest cryptocurrency by trading volume, Bitcoin (BTC), as a safe haven, similar to gold.
As per Reuters, Run now holds about 1 million yuan ($140,000) worth of cryptocurrencies, accounting for half of his investment portfolio, compared to just 40% in Chinese equities. While China’s stock market has been falling for the past three years, Run’s digital asset investments have surged by 45%.
Despite the official ban on cryptocurrency trading in mainland China, investors continue to trade tokens like Bitcoin on exchanges such as OKX and Binance.
Reuters reports that investors also use over-the-counter (OTC) channels and open overseas bank accounts to access the banned digital asset market. Additionally, Chinese citizens use their $50,000 annual forex purchase quotas to transfer funds into accounts in Hong Kong, taking advantage of the territory’s open support of digital assets.
As retail investors turn to cryptocurrencies, China’s brokers and financial institutions are also entering the crypto-related business in Hong Kong. With limited growth opportunities at home, these entities are exploring new avenues to satisfy shareholders and boards amidst a sluggish stock market and weak demand for initial public offerings, according to the report.
Well-known institutions such as the Bank of China, China Asset Management (ChinaAMC), and Harvest Fund Management Co are reportedly exploring digital asset businesses in Hong Kong.
Informal Peer-To-Peer Crypto Trading Thrives
According to the report, the country’s estimated $86.4 billion in raw transaction volume between July 2022 and June 2023 outperformed Hong Kong’s $64 billion in digital trading. Large retail transactions ranging from $10,000 to $1 million accounted for nearly twice the global average.
Data services provider platform Chainalysis emphasizes that a significant portion of China’s digital asset activity occurs through informal, “grey market” peer-to-peer businesses or over-the-counter transactions.
In Hong Kong, physical digital exchange stores have emerged, offering “lightly regulated” services. These offline shops, such as Crypto HK, allow customers to purchase cryptocurrencies with minimal requirements and without providing identity documents.
China’s crackdown on the property sector and a struggling stock market have reduced confidence in traditional investments. Plummeting home prices and the CSI 300 Index’s 50% decline since early 2021 have pushed investors toward alternative assets.
Notably, the report highlights Bitcoin’s recent 50% surge since mid-October, which has attracted investors seeking opportunities amidst the country’s economic transition.
In summary, driven by the economic downturn and seeking refuge from traditional investments, Chinese investors are exploring creative methods to participate in the digital asset market. Despite regulatory restrictions, the appeal of cryptocurrencies endures, and financial institutions are also exploring crypto-related businesses.
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