China has conducted recent police raids revealing ongoing illegal Forex activities heavily involving cryptocurrencies, despite the nationwide ban. The persistence of crypto trading highlights challenges in enforcement and suggests a continued strong demand for digital assets among Chinese citizens.
Persistent Crypto Trading in China
China’s efforts to clamp down on illegal Forex activities have shed light on the ongoing use of cryptocurrencies despite a stringent ban. Recent police raids have uncovered substantial illegal foreign exchange transactions facilitated by digital assets. Notably, authorities flagged an underground bank linked to 13.8 billion yuan ($1.9 billion) in illegal transfers. They also uncovered a gang involved in about 2 billion yuan in unauthorized conversions. These incidents highlight that Chinese citizens still engage in crypto activities. They do this to circumvent overseas transfer limits and seek alternative investments amid a declining property market.
Uncovering Underground Networks
The crackdown on underground networks has revealed the significant role of crypto in illegal activities. Authorities have broken up numerous gangs across China, with some transactions exceeding 1 billion yuan. For example, Beijing police dismantled 11 underground gangs, some using virtual currencies to conceal their operations. Such cases indicate that despite the ban, crypto trading persists, often hidden within peer-to-peer transactions. The decentralized nature of crypto makes it challenging for authorities to fully enforce the ban, resulting in a porous regulatory environment.
China’s Crypto Enforcement Challenges
China’s enforcement of the crypto ban faces several hurdles. The decentralized and peer-to-peer nature of digital assets makes it difficult to pinpoint traders’ locations. Tools that mask online activity add to this complexity. According to Chengyi Ong from Chainalysis Inc., around $86 billion worth of crypto flowed into China over 12 months through June 2023. Although this is a decline from pre-ban levels, it remains a significant amount globally. These figures suggest that while official restrictions are in place, they are not entirely effective in curbing crypto activity.
China’s Response to Illegal Crypto Activities
In response to the persistent illegal use of crypto, China has ramped up its efforts. The Public Security Bureau of Chengdu, for example, publicized the arrest of 193 individuals connected to 13.8 billion yuan in illegal transfers. The use of stablecoins like Tether (USDT) to facilitate these transactions was a common theme. Similarly, the Panshi City Public Security Bureau highlighted a case involving 2 billion yuan in illicit transfers, where digital tokens were used to convert yuan into South Korean won. These operations show China’s ongoing battle against illegal crypto activities.
Future of Crypto in China
Despite these crackdowns, the future of crypto in China remains uncertain. While trading is permitted in Hong Kong, the mainland’s strict regulations prevent easy access to crypto investments for Chinese citizens. Industry insiders note that such bans often lead to the creation of informal gray markets, which are harder to monitor and control. The persistence of crypto activity suggests that bans alone may not be sufficient. Instead, a more nuanced approach that addresses the underlying demand for digital assets might be necessary to effectively manage the issue.