Chinese investors risk investing in banned ‘safe-haven’ Cryptos, cautious of turbulent stock market

In response to the challenging economic conditions in China, several executives in Shanghai’s finance sector, have strategically diversified their investment portfolio by allocating a significant portion to cryptocurrencies, as per a recent report by Reuters. Recognizing the decline in the Chinese economy and stock markets, several investors began shifting funds into digital assets in early 2023. Citing bitcoin as a “safe haven, like gold,” some investors told Reuters that they currently hold millions yuan worth of cryptocurrencies. A growing trend among Chinese investors who are seeking refuge in cryptocurrencies amid the challenges faced by domestic stock and property markets. Operating in a regulatory grey area, individuals resort to various methods to trade tokens such as bitcoin, utilizing platforms like OKX and Binance, as well as over-the-counter channels. Some investors are even capitalizing on Hong Kong’s acceptance of digital assets. By leveraging their $50,000 annual forex purchase quotas for purposes like overseas travel or education, Chinese citizens are increasingly moving funds into cryptocurrency accounts in Hong Kong. The economic downturn in China has prompted a shift in investment strategies, leading to a surge in cryptocurrency interest. While mainland investors navigate regulatory restrictions, Hong Kong-based cryptocurrency exchanges report an influx of mainland investors entering the market. In response to the evolving landscape, China’s brokers and financial institutions are exploring crypto-related ventures in Hong Kong to capitalize on growth opportunities absent in the domestic market. The Hong Kong subsidiaries of major entities such as Bank of China, China Asset Management (ChinaAMC), and Harvest Fund Management Co are among those venturing into digital asset businesses. Despite the ban, obtaining bitcoin remains feasible on the mainland, as observed through online crypto exchanges and discussions with retail investors. Platforms like OKX and Binance continue to provide services to Chinese investors, facilitating transactions through fintech platforms like Ant Group’s Alipay and Tencent’s WeChat Pay. Chainalysis, a crypto data platform, notes a resurgence in crypto-related activities in China, with the country climbing to the 13th position in global peer-to-peer trade volume in 2023, up from 144 in 2022. Despite the ban, the Chinese crypto market recorded an estimated $86.4 billion in transaction volume between July 2022 and June 2023, surpassing Hong Kong’s $64 billion in crypto trading. The report indicates that a significant portion of China’s crypto activity occurs through over-the-counter and informal grey-market peer-to-peer channels. In Hong Kong, brick-and-mortar crypto exchange stores, lightly regulated and easily accessible, have emerged in busy business and shopping districts. The recent crackdown on China’s property sector and the stock market’s decline have led investors to explore alternative avenues. Bitcoin, with its 50 per cent surge since mid-October and known for its volatility, has become an attractive option. Observers speculate that Chinese officials, recognizing the disruptive potential and significant opportunities in cryptocurrencies, are endorsing crypto trading in Hong Kong to maintain influence in the global crypto market. Chainalysis suggests that these developments have sparked speculation about the Chinese government potentially warming up to cryptocurrency, with Hong Kong serving as a testing ground for such initiatives. Despite the regulatory challenges, the growing interest in cryptocurrencies among Chinese investors reflects a broader trend of seeking alternative investment avenues in the face of economic uncertainties.