Title Revision: As the Stock Market Falters, Chinese Investors Flock to Prohibited Bitcoin Transactions

Authored by Vidya Ranganathan and Summer Zhen

As a finance professional in Shanghai, Dylan Run began diversifying his funds into cryptocurrencies in early 2023 amidst concerns over the declining trajectory of China’s economy and faltering stock markets.

Notwithstanding China’s ban on cryptocurrency activities since 2021, Run cleverly navigated the restrictions by leveraging small-scale rural commercial bank cards to purchase digital currencies via underground markets, ensuring that each transaction did not exceed 50,000 yuan ($6,978) to avoid attracting attention.

Run views Bitcoin as “a refuge, akin to gold,” he comments.

In his portfolio, cryptocurrencies now represent a value of around 1 million yuan, equaling 50% of his investment holdings, as opposed to the 40% he previously poured into Chinese stocks.

His investments in digital currencies have enjoyed a 45% appreciation in value. In contrast, the Chinese equities market has been in a slump for three consecutive years.

Increasing numbers of Chinese investors, similar to Run, are resorting to innovative measures to acquire Bitcoin and other cryptocurrencies, which they perceive as more secure alternatives to the volatile domestic stock and real estate markets.

While officially outlawed in China, with stringent regulations on cross-border capital flows, individuals continue to engage in cryptocurrency transactions on platforms like OKX and Binance or via alternative peer-to-peer methods.

Chinese investors can also set up foreign bank accounts to purchase digital assets.

With Hong Kong favoring digital assets in recent times, Chinese nationals are also utilizing their $50,000 yearly foreign exchange purchase limits to funnel money into crypto accounts within the region—despite Chinese regulations which stipulate using such sums strictly for overseas travel or education.

“The precarious and disappointing investment landscape in mainland China has propelled people to reallocate assets abroad,” expressed a key Hong Kong crypto exchange representative, opting for anonymity due to the sensitive nature of the discourse.

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Crypto assets, he observed, are magnetizing such investors: “Our platform witnesses new mainland clients every day.”

Not only retail investors but Chinese brokerages and financial entities are also gravitating toward cryptocurrencies. Desperate for lucrative opportunities amidst a stagnant home market, these institutions are delving into crypto ventures in Hong Kong.

“For Chinese brokerages faced with a lethargic equities market, declining IPO interest, and contracting business sectors, identifying a narrative of growth to share with investors and the board is imperative,” elaborated the exchange official.

The Hong Kong branches of Bank of China, China Asset Management (ChinaAMC), and Harvest Fund Management Co are scrutinizing potential digital assets operations in the region.

OBTAINING CRYPTOCURRENCY

Despite the nationwide ban, accessing Bitcoin in mainland China is relatively undemanding, as found by Reuters through online platform examinations and investor discourses.

Crypto exchanges like OKX and Binance still cater to Chinese clients, guiding them to use financial technology services such as Ant Group’s Alipay and Tencent’s WeChat Pay for converting yuan to stablecoins with intermediaries, facilitating cryptocurrency transactions.

Neither OKX nor Binance responded to inquiries from Reuters.

According to Chainalysis, crypto engagement in China has surged, and the country’s peer-to-peer trading volume ranking globally has escalated from 144th in 2022 to 13th in 2023.

China’s black-market crypto transactions from July 2022 to June 2023 are speculated at $86.4 billion, overshadowing Hong Kong’s $64 billion. There, big trades between $10,000 and $1 million double the international average rate of 3.6%.

Most of this activity, Chainalysis reports, “is conducted through undercover outlets or unregulated peer-to-peer operations.”

In Hong Kong, physical crypto exchange storefronts have mushroomed, offering transactions with minimal regulatory oversight.

At establishments like Crypto HK in Admiralty, one can engage in cryptocurrency purchases starting at a mere HK$500 ($64), minus any demand for identification.

The concealed cryptocurrency marketplace in China is prospering robustly.

Michael Wang, a facilitator for personal crypto acquisitions, discloses daily transactions spanning several to tens of millions of yuan.

Charlie Wong, a 35-year-old equity analyst on the client-side, secured bitcoin through Hong Kong’s officially sanctioned Hashkey Exchange.

“Opportunities are scarce in conventional sectors. With underperforming Chinese stocks and other assets, and the economy at a pivotal juncture, it’s tough,” he noted.

Over the last three years, government measures against the property sector have deteriorated housing values, a conventional component of personal savings portfolios. The stock market’s fortunes have plummeted too, with the benchmark CSI 300 Index halved since early 2021.

Conversely, Bitcoin has witnessed a 50% rise since mid-October, despite being known for its volatility.

Wong posits that Chinese authorities are mindful of bitcoin’s disruptive capacity, yet also of its vast potential, which may be why they tolerate Hong Kong’s cryptocurrency trade, maintaining a presence in the booming crypto economies of global financial hubs such as Singapore and New York.

Although Hong Kong is self-regulated, it remains a Chinese special administrative region.

Chainalysis speculates that these moves “may signal a Chinese government thaw towards cryptocurrency, with Hong Kong serving as a trial venue for these initiatives.”

($1 = 7.1659 Chinese yuan renminbi)

($1 = 7.8197 Hong Kong dollars)

(Reported additionally by the Shanghai Newsroom; Edits by Vidya Ranganathan and Kim Coghill)