Chinese Capital Destined for Bitcoin?

Property Panic! Chinese markets continue to underperform, prompting investors in the world’s second-largest economy to dump onshore assets in favor of seemingly uncorrelated hedges as they flee for the exit. What asset are Chinese citizens now storing wealth in, and could these flows be coming to ape your bags!?!

Last year, outflows from Chinese corporations and households to other nations exceeded inflows for the first time in five years, and it is unlikely this trend reverses any time soon.

Broader risk markets performed well in 2023 and 2024, yet the Chinese equivalent to the S&P 500 – the CSI300 – remains 40% off its February 2021 high, with its performance sharply contrasting against that of its American counterpart, which achieved new all-time highs in January of this year.

Meanwhile, the nation's largest real estate developers teeter on the brink of default, saddled with trillions of dollars in debt and liquidation processes already underway in Hong Kong.

 Despite the best efforts of Chinese authorities to manage the downside up to this point, the nation is highly exposed to the inevitable deleveraging that must occur.

Private property ownership already represents 70% of Chinese household wealth, and with developers holding enough vacant inventory to house an additional 3B people, according to some estimates, it is unclear where further demand for these properties will come from.

Strict capital controls and regulatory frameworks make it extremely difficult to take money out of China, confining its companies and citizens to access a small number of state-approved instruments, but those seeking to divest still have some alternatives.

Potentially recognizing that the Chinese property collapse is imminent, the nation’s investors are now flocking to gold, a time-tested wealth storage vehicle and globally decentralized commodity, pushing the premium on a popular gold ETF to 30% and causing its trading to halt.

 While the Chinese government has historically made it exceedingly difficult to access crypto, two subsidiaries of Chinese asset managers recently announced that they would be applying to offer spot BTC ETFs in Hong Kong, bringing the total number of applications to three.

The Hong Kong Monetary Authority and Securities and Futures Commission stated last year that they would accept applications for crypto-based ETFs, and while some restrictions for Chinese investors attempting to bring capital to a semi-sovereign vassal state will still apply, the approval of these instruments would open a direct pipeline for Chinese capital to flow into BTC.

It is abundantly clear that China is in distress, and one of Bitcoin’s primary purposes is to act as an escape hatch from broken economies, a highly attractive feature for Chinese investors with immense exposure to their nation’s property sector.

While the shockwaves of deleveraging should the Chinese government opt not to backstop its developers via monetary stimulus will almost certainly crater the global economy, an alternative scenario in which money is printed to prop them up would result in structural inflation, yielding immense tailwinds for BTC price.