Bitcoin Surges Past $100,000: The Risks and Concerns Behind the Frenzy in Hong Kong and Mainland China Stock Markets

Bitcoin Surges Past $100,000: The Risks and Concerns Behind the Frenzy in Hong Kong and Mainland China Stock MarketsAt the end of 2024, Bitcoin's price dramatically broke through the $100,000 mark, reaching a historic high of $101,900 per coin. This milestone event triggered significant volatility in global capital markets, particularly in Hong Kong and mainland China's stock markets, where Bitcoin-related stocks experienced a surge in trading activity, fueling a wave of digital currency investment

Bitcoin Surges Past $100,000: The Risks and Concerns Behind the Frenzy in Hong Kong and Mainland China Stock Markets

At the end of 2024, Bitcoin's price dramatically broke through the $100,000 mark, reaching a historic high of $101,900 per coin. This milestone event triggered significant volatility in global capital markets, particularly in Hong Kong and mainland China's stock markets, where Bitcoin-related stocks experienced a surge in trading activity, fueling a wave of digital currency investment.

Since Bitcoin crossed the $100,000 threshold on December 5th, Hong Kong's stock market saw BoYa Interactive (00434.HK) experience an intraday surge of nearly 30%; BlueFocus Interactive (08267.HK) climbed by 20%; Meitu (01357.HK) rose by almost 9%; and Xiong'an Technology and OSL Group also saw their share prices increase. In the A-share market (mainland China), the blockchain sector performed strongly, with multiple stocks like Jincai Mutual, Huayang Lianzhong, and Yuyin Shares hitting their daily limits, while other stocks such as Bluefocus and Xinzhi Software saw increases exceeding 10%.

For the full year, the price movement of A-share and Hong Kong digital currency concept stocks showed a significant positive correlation with Bitcoin's price. As of now, among mainland Chinese stocks, Winsun's share price has increased by over 370%; Qitian Technology is up over 170%; and several other stocks, including New Morning Technology, Sifang Jingchuang, Feitian Chengxin, Gaoweida, and Changliang Technology, all saw year-to-date gains exceeding 60%. In the Hong Kong market, BoYa Interactive was the top-performing Bitcoin concept stock this year, rising from HK$0.5 per share at the beginning of the year to approximately HK$6, a year-on-year increase exceeding 1000%. Shopia Chen, head of a Hong Kong-based digital currency trading platform, noted: "However, the share prices of related Hong Kong stocks, whether BoYa Interactive or others, are very low, so the probability of speculative surges is higher when the cryptocurrency market rises sharply."

However, Bitcoin's volatility has always been a concern, and this price increase has led to a stark divergence between winners and losers. In the Hong Kong market, some listed companies exhibited a "wait-and-see" attitude. For instance, BoYa Interactive, whose share price increased tenfold this year, announced on November 12th that it held 2,641 Bitcoins at a total cost of approximately $143 million (average cost of ~$54,000 per coin) and 15,400 Ether at a total cost of approximately $42.58 million (average cost of ~$2756 per coin). Then, as Bitcoin broke through $100,000, BoYa Interactive adjusted its portfolio, exchanging 14,200 Ether for approximately 515 Bitcoin between November 19th and 28th. After the exchange, BoYa Interactive held approximately 3,183 Bitcoins with an average holding cost of approximately $57,700 per coin. Based on the latest Bitcoin price, BoYa Interactive's unrealized profit from its cryptocurrency holdings is close to $140 million (approximately RMB 1 billion).

Besides BoYa Interactive, other Hong Kong companies like BlueFocus Interactive and Guofu Innovation also hold Bitcoin. Unlike BoYa Interactive, which profited immensely from its Bitcoin holdings, Meitu opted for profit-taking. On the evening of December 4th, Meitu announced that it had sold approximately 31,000 Ether and 940 Bitcoin starting in November 2024, receiving total cash proceeds of approximately $180 million and realizing a profit of approximately $79.63 million (approximately RMB 5.7 billion). Meitu's 2023 annual report showed revenue of RMB 2.7 billion and adjusted net profit of RMB 370 million, exceeding its net profit for the whole of last year. Meitu's board plans to use approximately 80% of the net profit from the sale for special dividends, with the remaining portion used as general operating capital to expand its image and design product business, which is primarily based on a paid subscription model. Morgan Stanley affirmed its "overweight" rating and maintained its target price of HK$4.5. As of December 9th, Meitu's closing price was HK$2.97 per share, implying potential upside of 50%. Although Meitu's liquidation yielded substantial profits, many netizens believed it sold too early.

In the A-share market, relatively few listed companies hold cryptocurrencies. In August, Shenzhen-listed company Zhidu Shares (000676.SZ) stated on an investor interaction platform that it accounted for Bitcoin as intangible assets at cost; as of December 31, 2023, the book value of its intangible assetsdigital assets (Bitcoin)was RMB 56.47 million. The company sold some Bitcoin in the first quarter of this year; and in early November, Zhidu Shares reiterated that it still held Bitcoin.

However, Bitcoin's dramatic price swings pose significant risks. Industry insiders generally believe that while Bitcoin has a high probability of continuing to rise after surpassing $100,000, its volatile nature remains. Many investors use leverage, exacerbating market risks. On the morning of December 6th, Bitcoin briefly fell below $90,000, reaching a low of $89,711.9, a maximum drop of 7%, causing numerous investors to be liquidated, with nearly 210,000 liquidations totaling over $1 billion. Wang Heng, head of a Shanghai-based financial information company, stated: "Liquidation means investors used leverage to invest in Bitcoin. When the price falls below their principal, the platform will forcibly liquidate their positions, resulting in the loss of their entire investment."

Dan Coatsworth, an investment analyst at UK investment firm AJBell, cautioned investors to remain vigilant and avoid blindly chasing price increases. "Bitcoin's upward momentum can easily lead to euphoria, but it has experienced rapid rises and falls many times in the past. This is definitely not an investment suitable for the faint of heart. Furthermore, market participants are keen on using leverage, and the volatility of cryptocurrencies is far greater than the stock market, making it clearly unsuitable for leveraged trading."

Bryan Armour, head of passive strategies research at Morningstar, also pointed out the extreme volatility of cryptocurrencies, including Bitcoin. "As long as the market narrative remains positive, Bitcoin always has room to grow, but Trump's campaign promises don't always materialize. Bitcoin remains a highly volatile asset, and cryptocurrency investment remains a risky endeavor."

In summary, while Bitcoin's surge past $100,000 has generated substantial gains for some companies, it also highlights the high-risk nature of cryptocurrency investment. Investors must carefully assess risks, avoid blindly chasing price increases, and refrain from using leverage to prevent liquidation. The market is highly volatile, and any investment decision should be based on rational analysis and risk tolerance.