💥 Dylan Run, financial director of a business in Shanghai, bought Bitcoin in early 2023 and considered this digital currency like gold when he realized that other assets and Chinese stocks were going down1. Trading and mining cryptocurrency is banned in China from 2021, so Run used bank cards issued by small rural banks to buy cryptocurrency on the black market. He traded a maximum of 50,000 yuan (nearly 7,000 USD) at a time, to avoid being noticed by authorities.
“Bitcoin is a haven, like gold,” Run explained. He currently owns 1 million yuan (about 141,000 USD) worth of cryptocurrency, equivalent to nearly half of his investment portfolio. Securities currently account for 40% of the portfolio. Compared to 3 years ago, investment in cryptocurrency has skyrocketed, while investment in stocks has gradually decreased.
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 only operate in a gray area. Digital currencies 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.
China's economic downturn "has made investments in the mainland risky and unattractive," said the director of a cryptocurrency exchange in Hong Kong. Some investors have opened accounts in Hong Kong, as the city last year began allowing cryptocurrency trading. "Almost every day we see mainland investors participating in this market," the above Director revealed.
The Chinese real estate market has been in crisis for nearly 3 years, causing house prices to decline. Real estate is a traditional investment and savings channel for households in this country.
Chinese stocks also had a less optimistic start to the year. The CSI 300 index - including 300 large stocks listed on the Shanghai and Shenzhen exchanges - is currently half of what it was at the beginning of 2021.
In contrast, Bitcoin has increased in price by 50% since mid-October 2023. Currently, each coin trades around 40,100 USD. This digital currency is also famous for its large price fluctuations.
As individual investors look to cryptocurrencies, credit institutions do not want to be left behind. Realizing that growth opportunities on the mainland are decreasing, many businesses are opening up cryptocurrency-related businesses in Hong Kong.
“If the company operates on the mainland, in the context of the stock market going down, IPO demand weakening and other segments shrinking, you need to find other growth drivers to report to shareholders,” Director said the above trading floor director.
Bank of China's Hong Kong branch, China Asset Management (ChinaAMC) and Harvest Fund Management are all studying the possibility of doing business in Hong Kong in the field of digital assets.
Cryptocurrency data tracking platform Chainalysis said cryptocurrency-related activities in China are increasing sharply. The country's ranking globally, in terms of peer-to-peer (P2P) transaction volume, rose to 13th last year. In 2022, China's ranking is 144.
Despite being banned, the digital currency market in China still recorded transactions worth 86.4 billion USD in the period July 2022 - June 2023, much higher than Hong Kong, according to Chainalysis. The number of large transactions by individual investors (10,000 USD to 1 million USD) accounts for more than 6%, nearly double the global rate.
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 stores have been opened as places to trade digital currencies on crowded shopping streets. These stores are less controlled by the authorities. For example, at Crypto HK, a cryptocurrency store in Kim Chung district, customers can buy cryptocurrency for a minimum of 500 Hong Kong dollars (64 USD).
Charlie Wong – a 35-year-old equity analyst – also bought Bitcoin through Hashkey Exchange. This is an exchange licensed by Hong Kong. “It is very difficult to find opportunities in traditional fields. Chinese stocks and other assets have been going down recently. The economy is going through an important transition,” he explained.
Wong believes that the Chinese government understands how disruptive Bitcoin will be. They also saw the potential of this digital currency, so they approved the trading of Bitcoin in Hong Kong. This will help China retain its position in the booming cryptocurrency sector in many financial centers, such as Singapore or New York.
