DO ESG PREFERENCES SHAPE CRYPTO ADOPTION? A GMM ANALYSIS OF CHINESE INVESTORS

Abstract

This study examines the determinants of crypto asset investment in China from 2015 to 2024, utilising a dynamic panel data model estimated via the system Generalised Method of Moments (GMM). Crypto investment is proxied by the log of annual peer-to-peer trading volumes on Local Bitcoins and Paxful, capturing decentralised market activity in the context of China's evolving regulatory environment. The analysis incorporates a comprehensive set of explanatory variables, including Environmental (ENV), Social (SOC), and Governance (GOV) scores, as well as macroeconomic indicators such as GDP growth, inflation, and internet access. The empirical findings reveal strong persistence in crypto investment, with past trading volumes having a significant influence on current levels. ESG factors are positively and significantly associated with crypto activity, suggesting that institutional quality and sustainability frameworks play a key role in supporting crypto investment, even in a restrictive policy setting. Inflation exerts a negative effect, while GDP is found to be statistically insignificant. Internet access emerges as a significant driver of cryptocurrency investment, underscoring the importance of financial innovation and technological infrastructure. These results highlight the complex interplay between institutional factors, macroeconomic stability, and regulatory constraints in shaping crypto investment behaviour in China. The study contributes to the growing literature on digital finance by providing country-specific insights and policy-relevant implications for managing crypto development in restrictive but digitally advanced economies.

Keywords:    Crypto asset; China; GMM; Environmental; Social; Governance