Despite China’s ban on cryptocurrency, the gray market for digital assets is flourishing within the country. A recent study by Chainalysis revealed that over-the-counter (OTC) Chinese crypto traders recorded inflows totaling $75.4 billion in just nine months.
China implemented its crypto ban in 2021 due to concerns over capital flight and financial risks for investors. However, digital assets remain in high demand, with underground channels for crypto activity surging through OTC trades and peer-to-peer trading. According to Chainalysis, China ranks 20th in its annual Global Crypto Adoption index, suggesting a significant portion of the population continues to engage in crypto trading despite the ban.
Although Beijing has consistently cracked down on those violating its prohibition on digital assets, lenient enforcement may be fueling this recent growth. Chainalysis noted that more than half of the total value from Chinese OTC trades comes from users transferring over $1 million.
In April, Hong Kong, a special administrative region with a distinct political and economic system, approved spot Bitcoin exchange-traded funds (ETFs) for the first time. The region aims to establish itself as a crypto hub on par with global competitors like Dubai and Singapore, both of which have attracted numerous crypto firms in recent years.
Over the past year, Hong Kong has experienced remarkable growth in crypto adoption—recording an 85.6% increase, the largest in the region, according to Chainalysis. With recent challenges affecting China’s real estate market and economy, many mainland Chinese investors are viewing Hong Kong as a potential gateway to crypto exposure, although it remains uncertain how regulators in China will respond.