© Reuters. FILE PHOTO: Representation of the Bitcoin cryptocurrency is seen in this illustration taken January 11, 2024. REUTERS/Dado Ruvic/Illustration/File Photo
By Vidya Ranganathan and Summer Zhen
SHANGHAI/HONG KONG (Reuters) – Dylan Run, a Shanghai-based financial executive, started moving some of his money into cryptocurrencies in early 2023 when he realized that the Chinese economy and its stock markets were going down. downhill.
Cryptocurrency trading and mining has been banned in China since 2021. Run used bank cards issued by small rural commercial banks to purchase cryptocurrencies through gray market dealers and limited each transaction to 50,000 yuan ($6,978) to escape scrutiny.
“It's a safe haven, like gold,” says Run.
He now owns about 1 million yuan in cryptocurrencies, making up half of his investment portfolio, compared to just 40% in Chinese stocks.
His cryptocurrency investments have increased by 45%. Meanwhile, China's stock market has been sinking for 3 years.
Like Run, more and more Chinese investors are using creative ways to own bitcoin and other crypto assets that they believe are safer than investing in real estate and stock markets in their country.
They operate in a gray area. While cryptocurrencies are banned in mainland China and there are strict controls on the movement of capital across the border, people can still trade tokens like bitcoin on cryptocurrency exchanges like OKX and Binance, or through other over-the-counter channels.
Mainland investors can also open offshore bank accounts to purchase crypto assets.
Following Hong Kong's open support for digital assets last year, Chinese citizens are also using their $50,000 annual currency purchase quotas to move money to cryptocurrency accounts in the territory. Under Chinese rules, the money can only be used for purposes such as foreign travel or education.
China's economic crisis “has made investing in the mainland risky, uncertain and disappointing, so people are looking to allocate assets overseas,” said a senior executive at a Hong Kong-based cryptocurrency exchange. who asked not to be identified due to the sensitivity of the topic. .
Bitcoin and crypto assets have attracted these types of investors, he said: “Almost every day, we see investors from the mainland entering this market.”
As retail investors flock to cryptocurrencies, China's brokerages and other financial institutions are not far behind. Many of them, hungry for growth opportunities at home, are exploring cryptocurrency-related businesses in Hong Kong.
“If you are a Chinese brokerage facing a slow stock market, weak IPO demand and a contraction in other businesses, you need a growth story to tell your shareholders and board of directors,” the exchange executive said.
Bank of China's Hong Kong affiliates China Asset Management (ChinaAMC) and Harvest Fund Management Co are exploring businesses in the territory dealing with digital assets.
EVIL HAVING
Accessing bitcoin is not that difficult on the continent, according to Reuters checks of online cryptocurrency exchanges and interviews with retail investors.
Exchanges such as OKX and Binance still offer trading services for Chinese investors, guiding them to use fintech platforms such as Ant Group's Alipay and Tencent's WeChat Pay to convert yuan into stablecoins with dealers and trade cryptocurrencies.
OKX and Binance did not respond to Reuters requests for comment.
Crypto data platform Chainalysis says cryptocurrency-related activities in China have recovered, and its global ranking in terms of peer-to-peer trading volume jumped to 13th in 2023, from 144th in 2022.
Despite being banned, the Chinese crypto market recorded an estimated $86.4 billion in gross transaction volume between July 2022 and June 2023, eclipsing Hong Kong which witnessed $64 billion in cryptocurrency trading. Chainalysis said. And the proportion of large retail transactions between $10,000 and $1 million is almost double the global average of 3.6%.
Much of China's crypto activity “is carried out through over-the-counter businesses or through informal peer-to-peer gray market businesses,” Chainalysis said in the report.
Physical cryptocurrency exchange shops have sprung up on Hong Kong's busy shopping and shopping streets. These offline stores are lightly regulated.
At Crypto HK, a popular cryptocurrency store in the Admiralty district, customers can purchase cryptocurrency with a minimum of HK$500 ($64) and are not required to provide any identification.
The underground crypto market in China is thriving.
Michael Wang, a trader who helps people buy digital assets, says daily volumes amount to several million yuan or even tens of millions.
Charlie Wong, a 35-year-old buy-side equity analyst, bought bitcoin through the Hashkey Exchange, an officially recognized exchange in Hong Kong.
“It is difficult to find opportunities in traditional fields. Chinese stocks and other assets are performing poorly…the economy is going through a crucial transition,” he said.
China's crackdown on the real estate sector over the past three years has hit home prices, which were traditionally the mainstay of households' savings portfolios. The stock market has fared even worse, with the benchmark CSI 300 index falling by half its value since the start of 2021.
Bitcoin, on the other hand, is up 50% since mid-October and is known for its wild swings.
Wong believes that Chinese officials are aware of how disruptive bitcoin can be and yet aware of its enormous potential, hence their support for cryptocurrency trading in Hong Kong, to maintain a foothold in the bitcoin business. cryptocurrencies that are booming in financial centers such as Singapore and New York.
Hong Kong, although autonomously governed, is a Chinese special administrative region.
Chainalysis believes that the events “have created speculation that the Chinese government may be moving closer to cryptocurrencies and that Hong Kong may be a testing ground for these efforts.”
(1 dollar = 7.1659 renminbi)
($1 = 7.8197 Hong Kong dollars)
