China’s Crypto Traders Evade Ban with Innovative Tactics

Despite Beijing’s 2021 ban on cryptocurrency trading, a thriving underground market for digital assets persists in the country, reports the WSJ.

According to the publication, investors are using VPN services, social networks, and in-person transactions.

China’s Crypto Market Survives Crackdown

Measures taken by authorities throughout 2021 to tighten policies on cryptocurrencies and mining effectively banned them in the country. Many industry companies, including major exchanges Binance and Huobi, ceased operations in China. Digital asset traders face fines and even imprisonment.

However, this has not deterred a significant portion of retail investors. According to Chainalysis, from July 2022 to June 2023, the volume of cryptocurrency transactions in the country amounted to $86.4 billion. This figure likely includes Hong Kong’s $64 billion, although the autonomous region’s population is less than 0.5% of China’s total.

Some users retained their accounts on trading platforms and continued to use them after the ban, bypassing geographical restrictions with VPNs. In May 2023 alone, Chinese traders’ turnover on Binance reached $90 billion—about 20% of the total. According to CNBC, exchange employees provided guidance to Chinese users on evading KYC checks.

WSJ journalists also found that Chinese investors actively use social networks like WeChat and Telegram for cryptocurrency trading, presumably on P2P platforms. They find counterparts in specialized groups, avoiding the need to use centralized exchanges.

Physical trading of digital assets is also widespread. It is particularly developed in inland areas, where enforcement measures are more lenient compared to the capital and coastal megacities, the publication noted. Traders meet in public places such as cafes or laundromats to exchange wallet addresses or conduct transactions in cash or via bank transfer.

Back in December 2021, the Hong Kong newspaper South China Morning Post found through an anonymous survey that Chinese investors do not intend to abandon cryptocurrencies. Overall, they outlined possible ways to circumvent regulatory norms, which were confirmed by the WSJ.

The crackdown on the industry began with authorities’ actions to halt bitcoin and other digital asset mining in May 2021. However, this impacted large data centers, while small miners continued operations underground.

China Remains a Major Bitcoin Mining Hub

The country ceased to dominate the hash rate of the first cryptocurrency as early as March—before the effective mining ban. In a report published in October by the Cambridge Centre for Alternative Finance (CCAF), China’s computing power in the bitcoin network was already considered negligible.

The United States became the leader, increasing its share in the global metric alongside Kazakhstan and Canada. Experts identified these jurisdictions as the most likely destinations for migrating Chinese miners.

But in December, media reports citing experts indicated that local bitcoin miners still generate up to 20% of the network’s hash rate. Partially, they distributed equipment across households and offices. Some small private power plants continued to support miners to avoid ceasing operations due to a lack of demand for produced energy.

Interviewees told journalists they have to disguise their specific internet traffic to avoid detection by regulatory bodies. They noted that some pools provide technology for this purpose.

As of early 2022, CCAF confirmed experts’ assessments, ranking China second in bitcoin hash rate with 21.1% compared to 37.8% for the US.

According to a November 2023 estimate by MinerMetrics, the country has lost some of its share, which has decreased to 15%.

In December, China’s Supreme People’s Procuratorate issued a notice declaring the use of Tether’s USDT stablecoin in cross-border currency operations illegal.