December 29, 2021
Chinese investors in bitcoin and other cryptocurrencies are finding ways of circumventing restrictions that have effectively outlawed their preferred assets even after Binance and Huobi, two major crypto trading platforms, have vowed to purge mainland users.
The platforms’ announcements come at the end of a rough year for Chinese crypto traders, who have seen online communities shut down, pricing websites go dark, and major exchanges severing services. Harsher measures from exchanges come after Beijing specified this year that any offshore crypto platforms serving mainland clients are illegal.
Huobi and Binance said they would disable transactions in Chinese yuan by the end of December. Huobi has already halted new registrations using phone numbers from mainland China and said it would start charging a 0.2 per cent monthly fee for any Chinese accounts with a balance next year. Binance said its Chinese users will only be able to make withdrawals from January.
The pull-out even ended over-the-counter (OTC) trading in yuan on these platforms, removing a major trading method among domestic investors after exchanges were forced offshore in 2017. Users could previously purchase cryptocurrencies with yuan through banks or commonly-used online payment platforms. At least eight other platforms have also announced they will no longer support yuan purchases from next month.
Still, some people who already have crypto holdings plan to carry on despite the legal risks and regulatory hostility, according to investors who spoke to the South China Morning Post on the condition of anonymity.
Common approaches to continue trading involve using virtual private networks (VPN), registering foreign email addresses, and shifting assets to less centralised exchanges.
There are ways to still be able to transact, according to one investor. Use a VPN to bypass the Great Firewall, sign up with a foreign email service, choose a country that does not have an identity system. There are many such countries, the investor said.
Although cryptocurrency investors have been facing an increasingly harsh regulatory environment in recent years, Beijing tolerated bitcoin in its early years. That changed in December 2013, when government regulators, led by the central bank, initiated China’s first bitcoin crackdown by telling banks not to provide payment or settlement services for cryptocurrency trading.
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The crackdown gradually escalated over the years, and took another big leap in 2017, when authorities pushed exchanges like Binance and Huobi offshore.
When the 2017 ban was implemented, there was temporary chaos, as many exchanges suspended deposits and only allowed withdrawals, according to another cryptocurrency trader. At that time, some veterans formed private groups that popularised OTC transactions. This investor expected solutions because exchanges are more anxious than traders.
Another crackdown kicked off over the summer, when authorities pushed out most of the country’s bitcoin miners. Still, about 90 per cent of users across more than 100 crypto exchanges are from the mainland, Chinese financial news publication Caixin reported earlier this month, citing industry insiders.
However, it is becoming increasingly difficult for people to get started in cryptocurrencies.
New users cannot sign up, nor will they be able to exchange crypto assets with fiat money, according to a third investor. This person said they could trade cryptocurrency with another type of digital token.
The investor also indicated that people could use a decentralised exchange for transactions without any intermediary, such as a bank or broker. There are risks, however, because no party will guarantee the loss if an account is hacked, the person said.
Chinese judicial authorities have already made it clear that cryptocurrency assets are not protected by law. Earlier this month, a court in Beijing said bitcoin mining contracts are “void”, and rejected a lawsuit seeking monetary damages from a blockchain firm after the user failed to make money from bitcoin mining. In August, the high court in northern Shandong province also said in a case involving digital tokens that “cryptocurrency is not protected by law”.
Source: The South China Morning Post