Chinese investors have been reportedly defying China’s ban on cryptocurrencies. Despite the ban, which was effected in 2017, there has been a surge in crypto trading over recent months. This has in part been assisted by foreign and domestic (over the counter) OTC platforms and also peer-to-peer (P2P) networks.
China’s Ban on Crypto
Chinese authorities have been going hard on bitcoin exchange since its mainstream adoption. Their concerns range from Bitcoins’ fluctuating prices, which may lead to large losses in investments, fraud, and terrorism due to the untraceable nature of most cryptocurrencies.
Despite these warnings and sometimes outright threats, Chinese investors are still one of the most active in the crypto society. Before the ban in 2017, Chinese investors were estimated to own about 7% of global Bitcoins and carried about 80% of all the trading.
The ban and subsequent crackdowns have however hit China’s crypto community hard. The recent plunge in Chinese investment in Bitcoin caused an estimated $ 1 trillion sell-off earlier this month that sent Bitcoin to its lowest value this year. The exchange rate between the Chinese Yuan and the stable-coin Tether, a key indicator of local activity in cryptocurrencies, also fell by as much as 4.4%.
Despite government warnings, crackdowns, and cryptocurrencies’ falling price, some investors have been defiant and kept on trading. In fact, according to Feixiaohao, a crypto data platform the Chinese equivalent of CoinMarketCap, more than half of the losses experienced earlier this month have already been recouped.
One investor, Charles, a real estate consultant in Shanghai, told Bloomberg that he ‘doesn’t care’ about the ban. This was even after he admitted to losing over $11 million over three days due to the recent crackdowns. “To me, it’s giving back the profits I made in the past few months. I’m looking at the 10- to 20-year horizon,” he said.
How they do it
Despite the government’s hard stance and corresponding effort, crypto trading is still very vibrant in mainland China. This is because trades involving the Chinese Yuan and digital currencies are notoriously hard to track, even for a controlled state like China.
It happens in two steps:
First, traders post their bids and offers on OTC platforms operated by firms like OKEx and Huobi. Once the price is agreed upon between the buyer and the seller, payment will be sent via a separate payment platform such as Alipay.
The coins, which are usually held in escrow before confirmation of payment, will be transferred once the payment is processed.
The separate nature of the two transactions makes it extremely hard for authorities to connect one transaction to another.
Despite this, authorities have been insistent on warning investors from trading in cryptocurrencies. They have been particularly hard on banks and payment platforms, reminding them of their duties to identify and report any ‘suspicious’ transactions.
Some of their efforts have however borne fruits, at least officially. Some banks and trading platforms like Huobi have scaled back trading and mining.
There have also been unverified claims on social media of police using force. One investor reported that he was told to sell his holdings while another said that he was forced to delete his trading app from his phone.
Considering the massive population of China, experts estimate that local investors will continue to defy the government and trade in cryptocurrencies.