Amid the surge in the price of Bitcoin (BTC), which hit a new all-time high above $69,100 on Tuesday and looks poised to extend its gains, an unexpected source of demand has emerged: retail investors in China.
The government of China banned all things crypto in 2021, which sent a shockwave through the ecosystem as Chinese traders were some of the most active in the world, and the country also accounted for more than 50% of the Bitcoin mining hashrate at the time.
The ban was enacted, in part, to stem outflows from the country's financial sector amid a struggling economy that was severely impacted by the COVID-19 pandemic and subsequent lockdowns, while the Chinese real estate market also experienced notable declines.
China's economic downturn “has made investment on the mainland risky, uncertain and disappointing, so people are looking to allocate assets offshore,” one anonymous senior executive of a Hong Kong-based cryptocurrency exchangetold Reuters. “Almost every day, we see mainland investors coming into this market.”
As noted in a Tuesdayreport from Reuters, “Chinese money is pouring into funds invested in offshore assets at breakneck speed, butting up against outbound investment limits and complicating Beijing's efforts to revive domestic markets and stabilize the yuan.”
“The outbound scramble illustrates the pressure on China's capital account and currency and the challenges in rebuilding domestic investors’ confidence in their home market,” the report said.
According to areport from the South China Morning Post, Bitcoin’s rapid ascent over the past two months has made it a trending topic on all major Chinese social media platforms, with Bitcoin ranking as the eleventh most-searched term on microblogging service Weibo at one point.
Bitcoin’s popularity increased more than twelve-fold in February on the Chinese super app WeChat, according to Tencent Holdings’ official WeChat Index, which tracks keyword traction across in-app searches, videos, live streams, and blog posts.
This increase includes the 676% jump in BTC popularity on WeChat that was witnessed on Feb. 13, the day Bitcoin eclipsed the $50,000 mark for the first time in more than two years.
With Chinese traders now employing a variety of methods to skirt the crypto ban, state media platforms have taken to reminding citizens about the risks of investing in cryptocurrencies, with the state-owned newspaper Economic Daily warning readers that the rebound in BTC price “cannot hide the underlying risks of the digital asset.”
The article warned that investors should “stay cautious” about Bitcoin-related products and that Bitcoin has yet to enter the mainstream, and noted that while the U.S. has allowed the listing of spot BTC ETFs, China continues to enforce a ban on crypto trading.
It also reminded citizens the ban means overseas Bitcoin ETF dealers cannot sell relevant financial products to Chinese residents, and that investors in the Chinese mainland are also not allowed to directly purchase such products.
According to anotherreport from Reuters published yesterday, “Traders in South Korea, China, and other Asian countries are responsible for roughly 70% of Bitcoin trading volumes, much like they were in 2021 when Bitcoin last hit such heady highs.”
“Asia accounted for $791 billion of the $1.17 trillion worth of Bitcoin traded in February, with North American investors lagging way behind with $113 billion,” the report noted, “broadly reflecting a trend seen since November.”
Bitcoin’s rapid rise to new highs before the halving has also amped up the amount of FOMO Chinese investors are feeling, and its resilience at higher levels is only increasing the desire to get in as soon as possible.
“I want to buy some Bitcoin at a good price and hold,” said Mia Wang, a finance industry employee based in China's eastern province of Zhejiang. “It has jumped a lot and is expensive now, but I worry it won't have any correction.”
Just as BTC hitting new highs in U.S. dollar terms has been a driving force of demand and speculation for Americans, the fact that it hit a new high in yuan terms the day prior also likely has something to do with the uptick in FOMO from Chinese investors.
#Bitcoin just hit new ATH in China 🇨🇳 pic.twitter.com/mHOx93pbsp
— Vivek⚡️ (@Vivek4real_) March 4, 2024
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