Despite China’s comprehensive ban on cryptocurrency trading and mining since 2021, Chinese individuals and financial institutions are still searching for avenues to participate in the cryptocurrency market through Hong Kong, as the cryptocurrency market demonstrates greater growth potential compared to the Chinese stock market.
According to a report from Reuters, Dylan Run, a senior executive in Shanghai’s financial industry, began diverting some of his funds to cryptocurrencies in early 2023 after realizing that the Chinese economy and stock market were declining. He used a bank card issued by a small rural commercial bank to purchase cryptocurrencies through gray market traders, with a transaction limit of 50,000 yuan ($6,978) to evade scrutiny. For him, Bitcoin is a safer investment compared to the volatile domestic stock and real estate markets, serving as a safe haven similar to gold.
The report also cites the example of Buy-side stock analyst Charlie Wong, who invests in Bitcoin through Hong Kong-licensed exchange Hashkey Exchange. He stated, “It’s hard to find opportunities in traditional areas. Chinese stocks and other assets are performing poorly… The economy is undergoing a crucial transformation.” Charlie believes that Chinese officials recognize the disruptive nature and enormous potential of Bitcoin, and therefore support cryptocurrency trading in Hong Kong to establish a foothold in the booming cryptocurrency business in financial centers such as Singapore and New York.
This aligns with the viewpoint presented in a report by Chainalysis in October of last year, which stated that the existence of large over-the-counter trading markets indicates Beijing’s tolerance for cryptocurrencies, and Hong Kong may serve as a testing ground for cryptocurrencies.
The report also highlights that following the opening of retail trading in Hong Kong last year, Chinese citizens have been transferring funds to cryptocurrency accounts in Hong Kong for investment purposes using their annual $50,000 foreign exchange purchasing quota (according to Chinese regulations, this money can only be used for purposes such as overseas travel or education).
A senior executive from a Hong Kong-based cryptocurrency exchange stated, “Almost every day, we see Chinese investors entering the cryptocurrency market” because the economic downturn in China “has made investing on the mainland risky, uncertain, and disappointing, so people are seeking to allocate their assets overseas.”
As retail investors flock to cryptocurrencies, Chinese brokers and other financial institutions are also eager to join the trend. Many of them are exploring cryptocurrency-related businesses in Hong Kong due to the lack of domestic growth opportunities. The senior executive from the exchange added that it is understood that the Hong Kong subsidiaries of China Bank, Huaxia Fund, and Harvest Fund Management are all exploring digital asset businesses in Hong Kong.