Crypto traders are gaining access to the Chinese boom in artificial intelligence company stocks through a path that Beijing did not create for them. Instead of purchasing mainland Chinese shares, overseas investors are using perpetual futures contracts tied to Chinese chipmaker companies.
TracThese allow users to bet on stock prices without actually owning them, and they trade perpetually on cryptocurrency exchanges.
Through this mechanism, a separate market for brand names has formed, access to which is difficult for foreign capital through traditional exchanges.
The greatest interest is in the Chinese company CXMT, a memory chip manufacturer, whose shares are set to begin trading on the Shanghai Stock Exchange on Monday. TradeXYZ and Gate.com listed perpetual tracs linked to this company even before its public debut.
The company CoinGlass recorded a trading volume for CXMT futures of around $19 million over 24 hours. The chipmaker plans to raise nearly $10 billion, making this deal the largest IPO in mainland China since 2010.
Cryptocurrency Platforms Allow Offshore Traders to Bypass Chinese Stock Access Rules
Beijing operates a control system that hinders foreign investment in Shanghai and Shenzhen company stocks. Typically, foreign investors participate in trades through the Qualified Foreign Institutional Investor system or Hong Kong's Stock Connect program.
Both methods have limitations. While quotas limit the amount of money that can flow through the permitted channels, Stock Connect covers only a limited number of enterprises.
CXMT will list on Shanghai's STAR Market, which has strict requirements for local participants. Retail traders must have assets worth at least 500,000 yuan, or about $74,000 USD.
Additionally, a two-year trading history is required. This deters many mainland Chinese buyers from considering the company's pricing.
Since the trader never receives the shares, perpetual futures contracts bypass these account rules. This product originally emerged on cryptocurrency markets as a means to place bets on assets like Bitcoin without acquiring ownership.
Furthermore, it has no expiration date. Stablecoins are typically provided by users as collateral, after which they open a long or short position depending on where they believe the price will move.
Now this includes not just tokens. Cryptocurrency exchanges list tracs related to stocks, commodities, and private businesses. Traders have already used them to gain access to SpaceX and OpenAI shares before their public listings.
Tracs on SpaceX have also been used by Chinese users to circumvent laws aimed at preventing capital outflow from the country.
On Wednesday, TradeXYZ added a new trac on Chinese chips. The new contract offers tenfold leverage and tracs the shares of GigaDevice Semiconductor (SSE: 603986). This means losses can grow at the same rate as profits, however, a small deposit allows control of a much larger position.
Cryptocurrency Price for CXMT Significantly Exceeds Company's Planned Valuation on Shanghai Exchange
Pre-IPO trading is based on assumptions about how much a company might be worth after its shares begin public trading. A buyer earns money when the stock price opens on the exchange above the derivative price. After the debut, the flow of market data is expected to bring the trac closer to the current stock price.
Theo's Chief Investment Officer, Iggy Ioppe, stated that a perpetual position should mirror the underlying stock. Theo uses tokenized real-world assets. Instead of closing a position on a predetermined date, traders can continue using the trac after listing, as it never expires.
The CXMT share trac on Hyperliquid traded around $6.35 per share on Thursday. It reached a high of $8.60 before falling back again. The company's implied market capitalization on Thursday was about $425 billion, or approximately 2.9 trillion yuan.
Such a valuation would place CXMT above the Industrial and Commercial Bank of China (SSE: 601398; HKEX: 1398). ICBC, the largest company listed in mainland China, is valued at about 2.56 trillion yuan.
The official IPO figures are significantly lower. CXMT announced an initial sale price of 8.66 yuan, or about $1.28 per share. This put the initial valuation of the chipmaker near 579 billion yuan. Despite this, the sale would still be the largest IPO on the STAR Market.
Hyperliquid allows users to trade futures on commodities, stocks, and cryptocurrencies without acquiring the underlying assets.
Due to the inability of foreign investors to directly participate in the listing, demand from overseas investors has caused the price of the CXMT trac contract to be significantly higher than the offering price in Shanghai. As a result, a secondary price is being created on cryptocurrency platforms ahead of the official stock transfer.
