Although countless Western media outlets are describing China's “ban” on cryptocurrencies, cryptocurrency trading is still very much alive in mainland China. And in just one month last year, Binance reportedly did just that 90 billion dollars In Chinese cryptocurrency trading, making China the largest market for the world's largest exchange.
How is this possible? It's tempting to turn this into a story about the power of decentralized money to evade government control, and there is certainly some truth to that. But this is only part of the story. Cryptocurrencies have not disappeared in China because cryptocurrencies are not completely banned there.
This is very different from the impression you might get from Western media, which usually refers to a ban on cryptocurrencies in China or a ban on cryptocurrency trading. There are too many examples to list here – just do a basic search on these terms to see what I mean. However, when I asked several Chinese industry insiders if they thought it was accurate to say that cryptocurrencies are banned in China, the answer was overwhelmingly no. Their general understanding was that it was not illegal for individuals to own or trade cryptocurrencies, but their activities would not be protected by the law.
This interpretation is not limited to informal conversations. Article written by authors from a court in Fujian Province Notes “Laws and administrative policies do not completely prohibit transactions in virtual currency.” A Chinese law firm published a Detailed post About the topic that says: “Currently, our country has no laws or administrative regulations prohibiting Bitcoin trading activities.”
It is not difficult to understand why many assume that cryptocurrencies are completely banned in China. It is clear that the Chinese authorities have cracked down on the cryptocurrency industry, and there are many cryptocurrency-related activities that are not already permitted.
But in China, what is no It is often said that it takes on special significance. People tend to be interested in what is not explicitly restricted. Then they find room to maneuver in those relatively empty spaces.
So let's take a moment to review some of the more famous crackdowns and what was actually said. In 2013, China restricted Participation of financial institutions and payment institutions in dealing with Bitcoin. In 2017 China famous Banned initial coin offerings, or ICOs. China has also made clear that virtual currency exchanges are no longer welcome to operate openly there. Before the 2017 crackdown, China was the country Dominant player In Bitcoin size. The crackdown has not eliminated cryptocurrency trading on the mainland, but it has certainly pushed it into the gray area. BTCC, the longest-running Bitcoin exchange in China, closed its trading operations on the Chinese mainland in 2017.
And more Widespread crackdown It came in 2021. This document, signed by 10 Chinese official bodies, has a wide range of restrictions. It says that virtual currency does not have the same legal status as fiat currency. In other words, Bitcoin is not a legal tender. It says that commercial activities related to virtual currency are considered illegal financial activities. Exchange companies should not act as central counterparties for buying and selling virtual currencies, and it is illegal for offshore virtual currency exchanges to provide services to Chinese residents online. There is other restricted language as well.
And in 2021 China too It cracked hard On local crypto mining. But even amid all these limitations, noticeable gaps remain. For example, the 2021 regulations do not appear to restrict people from owning cryptocurrencies. It does not appear to restrict peer-to-peer trading between individuals.
Another important passage in the 2021 document may shed more light on China's official stance on cryptocurrencies. The section describes the legal risks involved in engaging in virtual currency investing and trading activities. It points out that if someone invests in virtual currencies and violates public order and good morals, the relevant civil legal proceedings are invalid, and the resulting losses are borne by individuals.
In other words, if you lose your savings in some cryptocurrency, don't cry to the government about it. Individual cryptocurrency activities are not necessarily protected by law, but that is not the same thing as a ban.
The above sections may look like split hair. One might argue that Chinese regulations make it so difficult to trade cryptocurrencies that they amount to trading effective Prevention. But to understand the real situation, you have to look not only at the rules themselves, but also at how these rules are applied or not applied.
It's no secret that China is cracking down on cryptocurrencies Do not stop Crypto trading. Chinese merchants got a network 86 billion dollars of cryptocurrency activity between July 2022 and June 2023, according to Chainalogy. In some cases, people continued to use accounts they opened on offshore exchanges. Sometimes they needed a VPN, other times they didn't. Peer-to-peer trading via social media apps such as WeChat or Telegram has also become possible. There are stories of people setting up companies offshore through brokers, and then using that offshore company to complete the institutional KYC process on cryptocurrency exchanges.
It is very difficult for the government to contain a decentralized currency like Bitcoin. But the popular narrative in Western media – that people are secretly trading cryptocurrencies behind the back of Chinese authorities – is not entirely true. In other words: If Binance was doing $90 billion worth of trade in China, the Chinese authorities probably knew something about it. In fact, the same thing Wall Street Journal article He noted that local law enforcement worked closely with Binance to identify criminal activity among the exchange's more than 900,000 active users. After checking out online cryptocurrency exchanges and interviewing retail investors, Reuters Found it “Accessing Bitcoin is not difficult on the mainland.”
The fact that so much cryptocurrency trading has survived the “ban” suggests that China never intended to wipe cryptocurrencies off the map. Instead, the main goal was to raise the barrier to entry. In this sense, the new rules were very effective. Making trading more hassle helps prevent cryptocurrencies from reaching large numbers of unsophisticated investors. The last thing Beijing wants is for these same investors to take to the streets to protest their losses. It all comes down to one of the basic principles of Chinese politics: maintaining social stability.
China has reason to be concerned about cryptocurrencies. It doesn't want people to use it to evade capital controls, for example. Meanwhile, China has long embraced the potential of blockchain technology, with Beijing even issuing a resolution Web3 white paper. The country has ambitious plans for a central bank digital currency. It is possible that the authorities will want to keep the door a little open for cryptocurrencies themselves, should this happen.
This theory will help explain what is happening in Hong Kong. The city has taken very public steps to establish itself as a city Digital Asset Center Asia if not the world. Hong Kong and China operate on the principle of “one country, two systems,” and Hong Kong’s relatively welcoming stance toward cryptocurrencies has at least some degree of approval from Beijing. Allowing cryptocurrencies to flourish in Hong Kong, if not the mainland, is a way for China to stay in the game while mitigating risks.
In China, you need to look not only at what the rules say, but at how people interpret them. Referring to China's policy as a blanket cryptocurrency ban oversimplifies the situation in one of the world's most important markets.
