- Amid a gloomy outlook for the Chinese economy investors are flocking to US-focused ETFs, creating record volumes despite high premiums and FOMO.
- Speculation has arisen about a potential shift towards crypto investments, including Bitcoin ETFs, despite existing government restrictions.
- Despite China’s stringent crypto trading ban introduced in 2021, investors have continued to engage in crypto trading, exploiting loopholes.
After the Chinese stock market sank to a five-year low last week, it recovered slightly on Tuesday, with indexes gaining 3%. However, amid broader issues such as slow post-COVID recovery, a struggling property sector, and low confidence in the private sector, the Chinese economy faces significant challenges.
On top of this China is grappling with deepening demographic challenges, including a shrinking workforce and a fast-ageing society.
Amid this it seems Chinese investors are turning their attention to the United States to seek safe haven investments. As Bloomberg analyst Eric Balchunas reports, Chinese investors are creating record volumes in US-focused ETFs. Despite a limited amount of cash which can flow into these products and the premium of up to 43% investors pay, there seems to be no limit to the FOMO (fear of missing out) by Chinese Investors.
Craziness: Chinese investors are stampeding out of local mkt (chart) and into US-focused ETFs, creating record volumes (chart). Problem is there’s a quota so they buying in at premiums of up to 43% which has govt issuing warnings but no one cares bc the US FOMO is that bad via… pic.twitter.com/CZTTO5oKXZ
— Eric Balchunas (@EricBalchunas) February 6, 2024
Balchunas expressed his concerns that things might not end well, saying the situation felt like “buying high on steroids” referring to a buy high sell low scenario.
Others are wondering if these conditions are likely to drive Chinese investors towards crypto to safeguard their money.
Some see the case for investors to end up investing in Bitcoin ETFs, an interesting scenario given the stance of the Chinese Government on crypto.
The FOMO is real! I wonder how many will end up in the Bitcoin ETFs?🤔
— TuqueCan (@TuqueCan) February 6, 2024
China’s Crypto Ban – and Crypto Trader’s Reality
China was crypto friendly early on but changed its policy drastically in 2021 when crypto trading was banned. However, people have not actually stopped completely trading crypto, amid ongoing interest in the asset class.
In a recent Wall Street Journal podcast, WSJ reporter Weilun Soon reported that due to the vastness of the country and the sector, it is quite challenging for China to monitor all the activities within it. According to conversations with retail investors based in mainland China, there are loopholes in the system allowing for the continuation of crypto trading despite restrictions.
These investors have found ways to trade cryptocurrencies through peer-to-peer networks of crypto exchanges, which, while officially banned from serving mainland China-based users, still seem accessible to some, whether they use virtual private networks (VPNs) or not.
Technically, the crypto exchanges are supposed to stop offering services to mainland China-based users. But some of them, as they have told us, they can still trade from within China, either with or without virtual private networks.
Weilun Soon
Additionally, investors have turned to social media networks and messaging apps, like WeChat or Telegram, to connect with each other. Soon said this enables them to arrange face-to-face meetings in public places such as laundromats, cafes, and snack kiosks to conduct their trades.
This, coupled with the country’s worsening economic conditions, an appetite for foreign financial products, and continued access to crypto assets, marks a bullish case for the industry.
If Chinese investors continue to pour their money into foreign assets, it is likely more will also find their way into the crypto space.
