How Chinese Bitcoin Buyers Are Getting Around Government Ban

Chinese citizens are as yet investing in Bitcoin and the cryptocurrency market in spite of the government's substantial crackdown.

In September 2017, Chinese cryptocurrency exchanges BTCC China, Huobi and OKCoin were requested by the government to close down their organizations. At a certain point, administrators of the three cryptocurrency exchanges were kept from leaving the nation, because of a government investigation into nearby cryptocurrency exchanges.

After three months, in December of 2017, China's three biggest cryptocurrency exchanges migrated their organizations to Hong Kong. BTCC China, Huobi and OKCoin rebranded to BTCC, Huobi Master and OKEx, separately. They planned to address the quickly developing interest from Hong Kong-based investors.

Shortly after their move, the three trading platforms started to see daily volumes from Chinese investors grow exponentially. Somehow, Chinese investors were managing to circumvent Chinese trading restrictions by using Hong Kong-based exchanges. How is this possible?

In Hong Kong, it is relatively easy for investors to set up businesses. With less than $1,000, businesses can be legally created, which allows the opening of business bank accounts at Hong Kong-based financial institutions. Beginning in December 2017, many Chinese investors moved their funds from their Chinese bank accounts to Hong Kong bank accounts and started to trade cryptocurrencies more actively, effectively bypassing China’s restrictions.

Be that as it may, not at all like China, Hong Kong has a significantly bring down supply to take care of the developing demand. While China is home to major miners like Bitmain, Hong Kong does not create much Bitcoin and different cryptocurrencies. Accordingly, premiums in the Hong Kong cryptocurrency market expanded, outperforming even that of the South Korean market. On January 18, when the worldwide normal cost of Bitcoin was around $11,500, Bitcoin was being traded at above $13,000 on Huobi Ace.

Krystal Hu, a Hong Kong-based fund columnist, noticed that traders outside of China have likewise begun to exploit the arbitrage opportunity displayed by the Hong Kong market. For example, on January 18, the cost of Bitcoin on Coinbase was $11,800. Acquiring Bitcoin from Coinbase and offering it on any Hong Kong-based market would have produced $1,200 in benefit.

Chinese Government Concerned

Hong Kong's exchanges have likewise coordinated broadly utilized fintech applications in China, for example, Alipay and Tencent's WeChat Pay. Alipay is a $60 billion fintech app that is utilized by more than 50 percent of mobile clients. WeChat Pay, which was just utilized by seven percent of mobile clients in 2014, is presently being utilized by more than 40 percent of mobile clients in China.

The coordination of the two fintech payment systems has expanded the availability of Hong Kong-based cryptocurrency OTC exchanges for Chinese investors, facilitating the way toward investing in the cryptocurrency market.

To keep Chinese investors from purchasing digital currencies, the Chinese government and the General population's Bank of China (PBoC), have requested that neighborhood banks unveil any suspicious exchanges connected to Hong Kong-based markets. Be that as it may, even this activity won't have the capacity to keep Chinese investors from getting to Hong Kong-based markets, because of apps, for example, Alipay and WeChat Pay.