The Wall Street Journal jokingly stated that Chinese investors were once the dominant force in cryptocurrency trading, and the yuan was the most popular legal currency used to trade Bitcoin. Now, China’s cryptocurrency investors are trying to circumvent the government’s strict regulations on cryptocurrency trading.
In fact, China’s relationship with cryptocurrencies has been one of the most interesting and difficult-to-understand stories in the industry over the past few years. Before 2017, mainland China was one of the most active crypto markets in the world and was far ahead in Bitcoin mining.
But in 2021, the People's Bank of China declared all encryption activities illegal, and China has become one of the regions with the strictest regulations on cryptocurrency in the world. Some large cryptocurrency exchanges established in China, such as Binance, had moved elsewhere long before the trading ban was introduced.
Despite this, there is still widespread cryptocurrency trading activity in mainland China. According to blockchain analysis company Chainalysis, Chinese traders made a net income of $86 billion from cryptocurrency activities between July 2022 and June 2023.
Many users in China still have accounts on overseas cryptocurrency exchanges that they created before the trading ban. They often access these accounts through virtual private networks (VPNs) to mask their location, according to people familiar with the matter. Some cryptocurrency traders in China can even access their accounts without using a VPN.
Although some exchanges such as Bybit, KuCoin and Gate.io currently do not allow mainland Chinese users to open accounts, and some exchanges have stated that they have closed mainland Chinese accounts. But Huobi Exchange (HTX) has launched a digital citizenship program that allows users to apply for other nationalities when opening an account.
In addition, Chinese cryptocurrency traders also use social media applications such as WeChat and Telegram to find counterparties. Through dedicated groups, buyers and sellers can connect directly without relying on exchanges for matching. This peer-to-peer transaction method is still very popular in China.
Not only that, in order to circumvent regulations, some cryptocurrency traders have resorted to traditional ways of trading. For example, meetings are held in public places to directly exchange cryptocurrency wallet addresses. These transactions can be made directly, involving cash payments or bank transfers.
It is understood that inland areas of China such as Chengdu and Yunnan are particularly popular for cryptocurrency trading. These areas were once popular locations for cryptocurrency mining operations, with powerful computer equipment used to create Bitcoin and other cryptocurrencies.
Cryptocurrency traders conduct transactions with property owners or other customers in public places such as laundromats, cafes, snack bars, or restaurants. Some traders find these businesses through the peer-to-peer services of cryptocurrency exchanges, while others rely on word of mouth.
The Chinese government’s tightening of capital controls and police investigations into alleged money laundering and financial crimes pose certain threats to cryptocurrency traders. The success of Chinese cryptocurrency traders in circumventing regulations also illustrates the decentralized nature of the cryptocurrency market, which makes regulation challenging.
The emergence of this complex situation highlights the imbalance between encryption supervision and market innovation. China’s control measures have fueled pent-up investor demand for crypto assets. Cryptocurrency traders are aware that their actions may be risky and they need to exercise caution and even continually seek out new trading channels and utilize technology and social media platforms to circumvent regulatory restrictions.
Summarize
If the cryptocurrency industry wants to develop sustainably, it cannot do without global cooperation and consensus. It is important for Chinese cryptocurrency traders to be aware of the changes and risks in the regulatory environment and take appropriate measures to ensure compliance. At the same time, governments and regulatory agencies also need to have a deeper understanding of the characteristics of the cryptocurrency market and seek innovative regulatory methods to balance regulatory needs and market innovation.
