China's stock rout has spurred a mad dash into banned bitcoin

• China's crypto transaction volumes have stayed strong, despite a ban on digital assets.
• Investors are turning towards cryptocurrencies as China's stocks have floundered.

The massive slide in Chinese equity markets is emboldening domestic traders to turn towards cryptocurrency, despite Beijing's strict disapproval of the asset class.

In the face of heavy regulation, mainland China still witnessed an estimated $86.4 billion raw transaction volume between July 2022 and June 2023, outpacing its industry-friendly counterpart in Hong Kong, a Chainalysis report found.

That's as Chinese stocks have been dragged down in the last three years, witnessing a $6 trillion valuation decline in that period. The downturn hasn't abated, with the country's CSI 300 index already down 4% this year.

Against this, both retail investors and brokerages in China are finding refuge in cryptocurrencies, sources told Reuters. One finance executive told the outlet that half of his portfolio is now made up of digital assets, which are up 45%.

"If you are a Chinese brokerage, facing a sluggish stock market, weak demand for IPOs, and shrinkage in other businesses, you need a growth story to tell your shareholders and the board," an anonymous crypto exchange executive said.

Technically, Beijing implemented a ban on crypto transactions in 2021, adding onto earlier curbs that suspended crypto exchanges and restricted banks from participating in the industry.

But investors have been finding ways around these barriers, Reuters reported. One strategy is to use over-the-counter channels, which are privately conducted transactions, or to go through international exchanges such as Binance.

Otherwise, investors have also been using offshore bank accounts to purchase cryptocurrency, or turning to Hong Kong, which has endorsed use of the asset class. Even Chinese bank and brokerage subsidiaries in the territory are eyeing crypto opportunities.

In recent days, Beijing has demonstrated a renewed desire to attract investors back into its equity markets, with a $280 billion support scheme in the works.

Alongside crypto, Chinese investors have been rushing to buy into foreign securities, as stocks in the US, Japan, and India have offered massive gains. To limit outflows, authorities have recently instructed domestic funds to curb access to overseas markets.