If you spend any amount of time reading about cryptocurrency markets, it won’t take long until the subject turns to China. These topics can range from mining farms with government subsidized electricity, to major Chinese exchanges and pools, or to how “the great firewall” is affecting network traffic.
The Economic State of China
What I’d like to talk about today is an economic problem that many individuals that live in China, like myself, face every day. If you live and work in China, then you will most likely be paid in the local currency, the yuan also known as CNY (Chinese Yuan) or RMB (Ren min bi).
The Chinese government exerts very strict controls on their money, to such an extent that all banks are state-owned and all citizens are limited to only moving $50,000 USD per year out of the country. This is what’s known as either capital flight or capital outflow laws, a restriction placed on money leaving the country.
As one of the fasting growing economies in the world, China is making more millionaires than ever and at faster and faster rates. The result of this is thousands upon thousands of people looking for a way to safely store and grow their financial assets.
Chinese Investors Look for Alternative Options
If the Chinese market was like any major Western country, investors would look at stocks, bonds, and other traditional investments to satisfy their needs. However, in China, the stock market is unreliable, and many feel that it is currently in a bubble that is just waiting to pop. The bond market only offers returns in the sub-single digits, and there are so many investment scams trying to lure high yield seekers that many have lost faith in domestic investments.
The first result of this fear has been the rampant buying up of property and assets overseas. The Guardian did a write up on the situation in Vancouver, Canada, about how housing prices have skyrocketed due to foreign investment, mainly by mainland Chinese, who are buying houses purely as an investment and leaving them empty, thus leaving large swathes of the city as a ghost town and the locals in a justified fury.
This has also happened in the domestic real estate market, with houses in major cities quickly bought up by speculators before they are even built.
Cryptocurrency Markets for Chinese Investors
So how do cryptocurrency assets fit into all of this?
Crypto assets, especially Bitcoin and Litecoin at the moment, represent to many of the wealthy and financially open-minded Chinese an opportunity to accomplish almost all of their financial goals at once – all free from government interference.
Crypto assets allow these investors a way to sidestep capital flight laws to protect themselves from quick changes in the value of the Yuan. These digital assets also act as an investment, allowing for profitable speculation and decent returns. Lastly, crypto assets offer a way to store asset value that is outside the reach of the Chinese government.
The Influence of Chinese Cryptocurrency Investors
According to a piece that appeared in The Merkle, the recent rise in price for Litecoin was largely due to Chinese investment. It has also been hypothesized that Bitmain, the produce of the Ant Miner ASICs and AntPool, has a huge influence on Bitcoin and Litecoin pricing.
So what does this mean for the average crypto asset holder who isn’t from China?
It means that we should continue to see more and more growth in the markets as more and more Chinese investors wake up to the idea of crypto assets. This form of investment is still not mainstream in China, as most investors still prefer real estate.
However, with laws in many cities like Vancouver quickly changing to prevent rampant speculation, we are likely to see even more investors move into the cryptocurrency markets – especially for Bitcoin and Litecoin.