Gray zone trading

Facing a severe downturn in the Chinese stock market, Chinese investors are increasingly turning to crypto assets (virtual currencies) as a safe haven for their assets.

According to a Reuters report on the 25th, an increasing number of investors in China are using “creative methods” to own Bitcoin and other virtual currencies, rather than investing in the domestic stock market or real estate market. He also believes that it is safe.

Virtual currency trading and mining have been prohibited in China since 2021, and cross-border fund transfers are strictly regulated. In October last year, People’s Bank of China Governor Pan Gongsheng announced his intention to thoroughly crack down on speculative activities such as virtual currency trading. In December of the same year, the State Administration of Foreign Exchange warned that “purchasing virtual currency and exchanging it for foreign fiat currency is illegal.”

connection:China’s Foreign Exchange Administration warns against foreign currency exchange using virtual currencies

However, despite these government regulations and warnings, it seems that Chinese people’s appetite for investing in cryptocurrencies has not diminished in the slightest.

Dylan Lan, a financial sector executive in Shanghai, bought cryptocurrencies through a gray market dealer. To avoid scrutiny, he uses cards issued by small local banks and caps each transaction at 50,000 yuan (about 1 million yen).

Access to virtual currency

According to a Reuters investigation, accessing Bitcoin in mainland China is not that difficult.

Major exchanges such as Binance and OKX still offer trading services to Chinese investors. It advises people to use payment platforms such as Alipay and WeChat Pay to exchange renminbi for stablecoins and conduct virtual currency transactions.

The Wall Street Journal reports that Chinese investors’ trading methods include using a VPN (virtual private network) to access foreign exchange accounts opened before the virtual currency ban, and face-to-face P2P trading. It conveys the current situation where it is flourishing.

According to blockchain analysis firm Chainalysis, the majority of Chinese investors’ cryptocurrency activity is done through over-the-counter trading and informal gray market P2P transactions. China jumped from 144th place in 2022 to 13th place in 2023 in the world ranking of P2P transaction volume.

connection:The reality of virtual currency transactions that are widespread despite being banned in China = WSJ report

The slowdown of the Chinese economy and the rise of virtual currency activity

According to Bloomberg, mainland China and Hong Kong stock markets have lost a combined $6 trillion worth of market capitalization since their previous peaks. The CSI300 index of mainland Chinese stocks has fallen sharply this month, with a decline of almost 40% over the past three years.

Equity analyst Charlie Wong said it was difficult to find good opportunities in traditional sectors.

Meanwhile, virtual currency activity in China is becoming more and more active despite government bans.

In the 2023 Global Cryptocurrency Adoption Index released by Chainalysis in September last year, China was ranked 11th as a country where people are adopting cryptocurrencies at the grassroots level. According to the firm’s analysis, Chinese traders received approximately 12.75 trillion yen ($86 billion) in cash from crypto activity between July 2022 and June 2023.

This amount significantly exceeds the virtual currency trading volume in Hong Kong during the same period, which was approximately 9.44 trillion yen ($64 billion).

Hong Kong’s role

Cryptocurrency trading stores are opening one after another in Hong Kong’s business districts and downtown areas, and one popular store, Crypto HK, allows you to purchase cryptocurrencies from HK$500 (approx. JPY 9,400) without identity verification. He says it’s possible.

Although the Hong Kong authorities have established clear regulations for virtual currency exchanges and are under their supervision, they appear to be taking only a lenient approach to P2P transactions conducted at physical stores.

In addition, China has a foreign exchange purchase limit of $50,000 per year for purposes such as overseas travel and education, and many investors use this system to transfer funds to virtual currency accounts in Hong Kong. .

An executive at a Hong Kong-based cryptocurrency exchange said the downturn in China’s economy is causing many people to move their assets overseas as “investments in mainland China are risky, uncertain and disappointing.” He said that they are starting to allocate more. In particular, he said that Bitcoin and virtual currencies are attracting Chinese investors.

Individual investors are not the only ones getting into virtual currency investing. The executive noted that Chinese brokers and financial institutions are also exploring crypto-related business in Hong Kong.

Wong argues that the Chinese government recognizes Bitcoin’s disruptive power and enormous potential. He believes that China’s decision to allow Hong Kong to become a hub for crypto trading is intended to maintain a foothold in the world’s rapidly growing crypto business.

connection:Hong Kong to soon release guidelines for tokenizing investment products

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