Binance’s $90 Billion Trade Reveals China’s Crypto Regulations are not a Total Ban
Recent reports have challenged the widely held belief that China has imposed a complete ban on cryptocurrencies. Contrary to popular opinion, there appears to be a thriving cryptocurrency trade taking place within China.
Binance, the world’s leading cryptocurrency exchange, is rumored to have facilitated an astounding $90 billion worth of Chinese cryptocurrency trades in just one month.
China’s approach to cryptocurrency regulation is far more complex than the commonly perceived total ban. Those in the know argue against the notion of a complete ban, stating that individuals are not legally prohibited from holding or trading cryptocurrencies, but their actions may lack legal protection.
While there have been notable crackdowns, such as in 2013 when financial institutions were barred from dealing with Bitcoin, and in 2017 when initial coin offerings (ICOs) were banned, it was also made clear that virtual currency exchanges could not openly operate in China.
A more significant crackdown occurred in 2021 when Bitcoin was effectively banned in China, with the government declaring it to be not real money. The rules stated that activities related to virtual currency were deemed illegal financial activities.
However, despite the crackdown on domestic cryptocurrency mining in 2021, China’s restrictions left noticeable loopholes. The 2021 rules do not seem to prevent individuals from holding cryptocurrency, nor do they seem to block peer-to-peer trading between individuals.
Interestingly, some individuals have found ways to circumvent the restrictions. They have continued to use accounts they opened on overseas exchanges, sometimes using a VPN and sometimes without. They have also conducted direct trades using social apps like WeChat or Telegram. Some have gone even further by establishing companies outside of China through intermediaries and then using those companies to complete the institutional know-your-customer (KYC) identification process on cryptocurrency exchanges.
Considering that a significant amount of cryptocurrency trading has persisted despite the “ban,” it appears that China may not have truly intended to completely eliminate cryptocurrencies.
China’s cautious approach to cryptocurrencies stems from concerns about potential misuse for evading capital controls. However, the country has consistently shown interest in blockchain technology, as evidenced by the issuance of a Web3 white paper and exploration of a central bank digital currency.
This dual approach suggests that China is leaving the door slightly open for cryptocurrencies while effectively managing the associated risks.
Hong Kong, operating under the “one country, two systems” model, has positioned itself as a digital asset hub in Asia. Its relatively favorable stance towards cryptocurrencies, coupled with Beijing’s approval, allows China to maintain a presence in the cryptocurrency sphere while effectively managing risks.
Characterizing China’s cryptocurrency policy as an outright ban oversimplifies the nuanced reality. Instead, it suggests that China aims to control and regulate cryptocurrency activities rather than completely eradicate them.