One of the hottest topics in the industry these days is that the price of BNB on Binance, the world's leading virtual currency exchange, has reached $720, breaking a record high. Another piece of news is that the originally reserved virtual currency exchange Bybit suddenly opened registration for users in mainland China.
Open Bybit
Bybit is a well-known virtual currency exchange founded in 2018 and headquartered in Dubai. Founded by former foreign exchange traders and blockchain technology experts, the company is committed to providing professional, intelligent and intuitive trading experience to users around the world. In 2021, Bybit took the lead in banning users from mainland China, closing the login and API interface of all accounts registered with Chinese mobile phone numbers and Chinese IP. On June 5, 2024, Bybit suddenly opened registration for users from mainland China, and mainland China ID cards could pass the first-level identity authentication normally, with a daily withdrawal limit of 1 million USDT. This news was not notified and explained internally, causing some employees to panic.
Later, Bybit issued a statement saying that the opening of Chinese ID card registration is to expand the scope of services to cover overseas Chinese communities, that is, Chinese people living outside of China and other restricted jurisdictions. This move is aimed at meeting the needs of Chinese expatriates and international Chinese communities. Bybit's business has grown rapidly recently, and its spot business once surpassed the old exchange OKX. People familiar with the matter analyzed that Bybit hopes to further expand its market share by expanding into new regions, but this decision is contrary to the cautious style of Bybit's management.
Bybit had earlier withdrawn its application for a Hong Kong license because Hong Kong does not allow licensed entities to develop mainland China business. Opening up mainland China registration may bring more users to Bybit, but it may also face stricter regulatory scrutiny and potential legal risks.
Twisted compliant exchanges
Yesterday, a friend from the Hong Kong media South China Morning Post called to interview lawyer Hong Lin and asked me what I thought about this matter. I said that the main reason is probably to occupy more market share to make money. There are wolves like Binance in front and tigers like Bitget in the back. The second-tier exchanges are actually having a harder time. If you don’t move forward, you will move backward. In this bull market, there is not much time left for altcoins, retail investors, and exchanges.
Friends who are engaged in compliant exchanges in the industry have gradually realized a problem. Compliance is a good thing, but it is harmful if you do it too much. Compliance is a double-edged sword. Having a compliant license does make it easier for the project party to brag and promote it, and it seems that the family is big and powerful, but at the same time it is like putting handcuffs on yourself, and there are fewer and fewer things you can do, and naturally less and less money you can make.
Just look at the situation in Hong Kong. Most of the entrepreneurs who enthusiastically applied for exchange licenses in this wave have recently withdrawn their "friend requests" one after another. This is because they think that they have already taken advantage of the popularity of submitting license applications. If they really pay for the license, it will still be a bit painful. After all, the current market environment in Hong Kong is not ideal, and the cost-effectiveness of obtaining a license is not high. If you can't make money, why do it?
Not only in Hong Kong, but also in the context of tightening policies, countries are constantly strengthening their supervision of virtual currency exchanges. For example, Singapore, Japan and other places are strengthening their regulatory requirements for virtual currency transactions, requiring exchanges to implement stricter KYC (know your customer) and anti-money laundering measures. This means that exchanges need to invest more resources to ensure compliance and face greater operational pressure.
For Bybit, choosing to open registration to users in mainland China is a risky attempt between huge market potential and strict regulatory environment. The market potential is huge, but it also comes with risks that cannot be ignored. If market expansion and compliance requirements are not well balanced, serious legal and operational risks may be faced.
The exchange employee who was backstabbed
Of course, the market structure of virtual currency exchanges is not what we are going to discuss today. What is more important is the employees of these domestic exchanges. I saw Wu said in the news that the employees in the mainland are actually a little nervous. In fact, not only Bybit, but also several leading exchanges such as BN and OK actually still have many employees in mainland China, distributed in Beijing, Shanghai, Shenzhen, Hangzhou and other places.
Strictly speaking, according to China's regulatory policies, employees of these exchanges actually face great risks in China. According to the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (hereinafter referred to as the "9.24 Notice") jointly issued by the Ministry of Public Security, the Supreme People's Procuratorate, the Supreme People's Court and other 10 departments in September 2021, clear regulations were made for the business activities of virtual currency exchanges in mainland China.
The third paragraph of Article 1 states: "Overseas virtual currency exchanges that provide services to residents in my country through the Internet are also illegal financial activities. Domestic staff of overseas virtual currency exchanges...legal persons, non-legal organizations, and natural persons who provide them with marketing, promotion, payment settlement, technical support and other services shall be held accountable in accordance with the law." This means that residents in my country who are employed by overseas virtual currency exchanges and provide them with marketing, promotion, payment settlement, technical support and other services will be held accountable according to law.
Here are a few terms that need additional explanation:
"Domestic staff" are not employees in the narrow sense. In addition to those who have signed formal labor contracts, those who have signed labor contracts, part-time contracts, or even those who have not signed contracts but actually provide labor results to the exchange and receive remuneration are all "staff" in the broad sense. Even some "volunteers" may be identified as staff if they are deeply involved in the exchange's business in China, especially in criminal cases that focus on substance rather than appearance;
In addition to the sales services and promotion services provided by exchange staff, some KOLs provide promotional activities for overseas exchanges in China, which also poses huge legal risks.
"Payment and settlement" mainly refers to the payment and settlement work of financial institutions or non-financial payment and settlement institutions to provide funds for exchanges. In my country, at least on the surface, this aspect has been strictly prohibited, but in fact, there are still many people who trade in virtual currency exchanges through bank cards, WeChat, Alipay and other channels. Due to the huge size, these payment and settlement institutions are difficult to fully supervise, but major banks and payment and settlement institutions such as WeChat and Alipay have stated long before the "9.24 Notice" that users are strictly prohibited from using their payment and settlement channels to trade virtual currencies. Once violated, they must bear the corresponding consequences of breach of contract (freezing, canceling accounts, prohibiting the opening of new accounts, etc.). The biggest risk here is some small-scale or even black and gray industries that help virtual currency exchanges carry out payment and settlement in China. Once these platforms are seized by relevant departments, the consequences are likely to involve crimes;
"Technical support" mainly focuses on providing network connection support (which basically involves the use of scientific Internet tools), platform building support, operation and maintenance support, etc. for overseas exchanges to conduct business in China. Unlike the marketing personnel who provide "marketing and publicity", "technical support" type of work requires strong technical capabilities and is an indispensable job for exchanges to conduct business in China. However, it also determines that the legal risks of this type of job are to a certain extent higher than those of marketing personnel.
Some friends still ask: Since this thing cannot be done, why has my friend worked in a certain Shanghai office of An and a certain Shenzhen office of Yi for several years but has not achieved anything?
First of all, from the perspective of judicial supervision policies within China, it is of course illegal for domestic staff of overseas virtual currency exchanges to provide services to domestic residents; however, from a practical perspective, firstly, the regulators have not taken any punitive measures against these people based on many factors such as law enforcement capabilities and costs. If they really want to cause trouble, it would certainly be more cost-effective to target the leaders or backbones of the organization first.
Secondly, some large overseas virtual currency exchanges are large in scale after all. As long as they operate in compliance with regulations overseas and keep a low profile in China (assuming they have business), they generally will not actively trigger the attention of judicial authorities. However, once there are a large number of transaction risks, especially when domestic residents suffer major losses in the exchange, these domestic staff are often the first to be investigated.
Therefore, if you really intend to work in the cryptocurrency exchange and be active on the front line as a main force, Honglin Lawyer gives you a pragmatic suggestion to make good preparations for identity planning and going overseas. After all, making money is for a while, but living freely is for a lifetime.
