Hong Kong Protests Catalyze Bitcoin Premium
The price difference established itself in early June when the extradition bill that catalyzed the unrest was due to have its second reading.
At the time, Bitcoin was trading at a premium of about $160 on top Hong Kong exchange Tidebit. As the protests raged on, the premium has persisted — creating a gap between the price of Bitcoin in Hong Kong and the rest of the world.
Source: Trading View
Hong Kong locals buying Bitcoin locally on peer-to-peer exchange LocalBitcoins pay an even higher price. Sellers command a premium of $1,944 HKD ($247 USD) to $37,559 HKD ($4787 USD) more than the Bitcoin Liquid Index (BLX).
Peer-to-peer exchanges like LocalBitcoins are known for commanding higher prices, but buyers in Hong Kong dollars are still paying a higher premium than in most other currencies, with buyers in the US paying a maximum of $267 more per bitcoin on LocalBitcoins when compared to exchanges.
Bitcoin as a protest tool
Armed with lasers, and wearing masks to combat facial recognition technology and the threat of tear gas, sophisticated Hong Kong protesters use encrypted messaging apps to communicate.
These technologies have proved essential for the longevity of the movement; allowing protesters to avoid giving local authorities information that could get them arrested.
Bitcoin, banned over the border in neighboring China, allows protesters to covertly support products and services not favored by the Chinese authorities, and store value without relying on an increasingly uncertain financial market.
The Hong Kong Free Press, which provides independent reporting that doesn't toe the Chinese Communist Party line, has reported a flurry of donations in bitcoin as tensions rose. “We've seen a flurry of donations today! Help us pay for freelancers, safety gear, overtime, insurance, etc," wrote a Redditor claiming to be the paper’s editor-in-chief.
Elsewhere, the advantages of cryptocurrency have been made even more evident.
Independence activist Chen Haotian called for a bank run on Friday 16th, asking Hong Kong citizens to pull out their Hong Kong dollars in a bid to bring Chinese banks to their knees.
Haotian, who serves as the chairman of the Hong Kong National Party, told protesters that the primary goal of the bank run was to suck cash out of Chinese banks and reduce the People’s Bank of China’s influence on the Hong Kong economy.
Protesters responded by withdrawing their hard currency from banks and ATMs en masse, visiting multiple locations to circumvent transaction limits on single ATMs, and reportedly leading some in the city to run out of cash.
These actions have historic precedent. Hong Kong citizens caused a run on the financial institutions Standard Chartered Bank and Citibank Hong Kong in August 1991 after the closure of the Bank of Credit and Commerce Hong Kong (BCCHK) led to widespread loss of confidence in banks in the city.
But unlike the bank run of 1991, protesters withdrawing money today have a politically neutral, censorship-resistant, and easily accessible place to store the value — Bitcoin.
Volume figures on LocalBitcoins show that as Hong Kong's summer of discontent has worn on, peer-to-peer trading has increased, suggesting that citizens could be selling more local currency for Bitcoin to escape the uncertainty surrounding the legacy markets.
Source: Coin Dance
The move into Bitcoin corresponds with a wider capital outflow from Hong Kong. Political unrest along with the weakening Hong Kong dollar, and the recent reduction of interest rates in line with other central banks to 2.5 percent, are all thought to be spurring investors to move their assets elsewhere.
TransferWise — a fintech firm that offers international bank transfers with lower fees than high street banks — told the Wall Street Journal that it has experienced "a significant pickup in outbound flows from Hong Kong since the protests began", suggesting that Hong Kong citizens are quick to take advantage of new technologies allowing them to flee the financial uncertainty.