Amid China’s crypto ban since September 2021, it appears that mainland Chinese investors are still actively trading in these digital assets. While rumors suggest that the mainland’s ban may be relaxed, there is no concrete evidence to support this claim. Its government’s crackdown on cryptocurrencies due to concerns over money laundering, currency outflows, and Bitcoin mining‘s environmental impact has made it difficult to predict any changes in the near future. The ongoing trading activities of its investors, however, suggest that some of the country’s 1.4 billion citizens may be disregarding the prohibition as they seek alternative investment options beyond property and stocks.
Skirting the Rules by Masking Locations
In a report by Bloomberg, crypto exchanges are attempting to prevent mainland Chinese users from trading by blocking their IP addresses, but virtual private networks (VPNs) can easily bypass these roadblocks by masking users’ locations. The challenge for enforcing such measures is ensuring compliance, particularly on exchanges’ filtering systems for Chinese passport holders, according to Jack Ding, a partner at Duan & Duan Law Firm, which specializes in crypto regulations.
Despite the ban, Chinese investors continue to trade digital assets. Several investors revealed they had traded on platforms such as Binance and OKX after the ban was introduced. Evidence of ongoing Chinese interest in digital assets is also seen in FTX’s creditor profile, which revealed that 8% of the exchange’s customers were from China. Industry insiders also describe workarounds that allow investors to bypass the ban.
The bankruptcy of FTX, which collapsed in November 2022, highlights the scale of Chinese involvement in digital assets. The infamous exchange had over 9 million customer accounts, with creditor claims totaling at least $11.6 billion.
Challenging Enforcement of China’s Crypto Ban
Caroline Malcolm, who heads public policy at Chainalysis, a company that tracks digital-asset transactions, suggests that bans on cryptocurrencies are ineffective, given the decentralized nature of these assets and the ease of peer-to-peer transfers and global trading. Although China has prohibited digital assets, its investors still find ways to access them, such as acquiring a “digital identity” in the Dominicans.
Huobi Global claims to prohibit Chinese Internet Protocol addresses from accessing the platform. The company stated that its new customers are supposed to be from anywhere around the globe except China. However, some Chinese investors continue to dive into the crypto market using its system.
Despite announcing the ban in September 2021 and declaring all crypto-related transactions illegal, the People’s Bank of China has not commented on Chinese investors’ continued involvement in digital assets, particularly on cryptocurrencies.
The fact that Chinese investors continue to find ways to dive into cryptocurrencies despite the country’s ban on them makes it difficult for any government to completely eliminate these digital assets. It also makes it challenging to predict the outlook for these virtual asset markets, which have partially revived this year from the 2022 crypto crash.
There could be several factors driving the Chinese’s appetite for risk and tendency to skirt the rules around China’s crypto ban. One possible reason is the limited investment opportunities available on the mainland. With restrictions on property purchases and a volatile stock market, some of its local investors may be turning to cryptocurrencies as an alternative investment. Additionally, the potential for high returns in the crypto market may be a driving factor for some investors, despite the risks involved.
Another possible factor is the Chinese government’s history of strict capital controls, which may have led some investors to seek ways to circumvent these restrictions and move their money out of the country through cryptocurrencies. Additionally, some may see the ban as a challenge to be overcome, leading to a desire to find ways to continue investing in digital assets despite the restrictions.
Overall, it is likely a combination of the mentioned factors that are driving the Chinese’s appetite for risk and tendency to skirt the rules around the crypto ban.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager of a consultancy firm.