Despite various Western media sites proclaiming China’s crypto “ban,” the cryptocurrency trade is still very much alive on mainland China. Binance claimed $90 billion in Chinese cryptocurrency trades in a single month last year, making it the largest market for the world’s largest exchange.

How is that possible? It’s tempting to spin this into a parable about the ability of decentralised money to evade government oversight, and there is some truth to that. But it is only part of the story. Cryptocurrency has not disappeared in China because it is not entirely forbidden.

This is considerably different from the picture you’d get from Western media outlets, which frequently mention China’s crypto ban or ban on cryptocurrency exchange. There are too many instances to list here; simply conduct a basic search using those terms to understand what I mean. However, when I questioned numerous Chinese industry insiders if they believed it was accurate to suggest that cryptocurrency is outlawed in China, the overwhelming response was no. Their common idea was that while it is not unlawful for individuals to keep or trade cryptocurrency, their activities are not legally protected.

This understanding is not restricted to informal talks. An article prepared by authors from a court in Fujian province indicates that “administrative laws and policies do not completely prohibit virtual currency transactions.” A Chinese law company wrote a lengthy essay on the subject, stating that “currently, our country has no laws or administrative regulations prohibiting Bitcoin trading activities.”

Reading between the lines

It’s easy to see why many people believe that cryptocurrency is completely outlawed in China. Chinese authorities have obviously tightened down on the cryptocurrency industry, and many crypto-related activities are certainly prohibited.

In China, silence is frequently more significant than words. People tend to focus on what is not explicitly forbidden. Then they find room to move in such comparatively empty locations.

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So let’s take look at some of the most well-known cryptocurrency crackdowns and what they actually said. In 2013, China limited financial and payment organisations’ involvement in Bitcoin. In 2017, China banned initial coin offerings (ICOs).China also made it plain that virtual currency exchanges were no longer permitted to operate openly there. Prior to the 2017 crackdown, China had the highest bitcoin volume. The crackdown did not end mainland cryptocurrency trade, but it did push it into the grey region. BTCC, China’s longest-running Bitcoin exchange, discontinued its mainland Chinese trading operations in 2017.

In 2021, China implemented strict regulations on domestic cryptocurrency mining. Despite these limitations, there are significant gaps. The 2021 regulations, for example, do not appear to prohibit individuals from owning cryptocurrencies. They do not appear to limit peer-to-peer trade between individuals. Another key passage in the 2021 document may give additional light on China’s official stance towards cryptocurrency. The passage explains the legal hazards associated with investing in and trading virtual currencies. It states that if someone invests in virtual currencies while violating public order and good morals, the related civil legal actions are void, and the ensuing losses are borne by individuals.

In other words, if you lose your life savings on some meme coin, don’t go crying to the government about it. Individual crypto activities are not necessarily protected by law, but that’s not the same thing as being banned.

The above passages may look like splitting hairs. One might argue that Chinese regulations make it so difficult to trade crypto that it amounts to an effective ban. But in order to understand the real situation, you have to look not just at the rules themselves, but at how the rules are – or not – being enforced.

It’s no secret that China’s crypto crackdown did not stop crypto trade. Chinese traders got a net $86 billion from crypto activity between July 2022 and June 2023, according to Chainalysis. In some cases, people continued to use accounts that they had opened on overseas exchanges. Sometimes they needed a virtual private network, sometimes they did not. Peer-to-peer trading via social media apps like WeChat or Telegram has also been possible. There are stories of people setting up companies abroad through intermediaries, and then using that overseas company to complete institutional know-your-customer (KYC) identification on crypto exchanges.

It’s notoriously difficult for a government to contain a decentralized currency like Bitcoin. But the common Western media narrative — that people are furtively trading crypto behind the backs of Chinese authorities – is not quite right. Put another way: If Binance was doing $90 billion of trade in China, Chinese authorities probably knew something about it. In fact, that same WSJ article 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 online crypto exchanges and interviewing retail investors, Reuters found that “access to bitcoin isn’t that difficult on the mainland.”

The fact that so much crypto trade survived the “ban” suggests that China never intended to wipe crypto off the map. Instead, the main goal was to raise the barrier to entry. In this sense, the new rules were extremely effective. Making trade more inconvenient helps prevent crypto from reaching masses of unsophisticated investors. The last thing Beijing wants is for those same investors to take to the streets to protest their losses. It all comes down to one of the key principles in Chinese policy: Preserving social stability.

China has reason to be wary of crypto. It doesn’t want people to use it to evade its capital controls, for example. At the same time, China has long embraced the potential of blockchain technology, and Beijing even issued a Web3 white paper. The country has ambitious plans for its central bank digital currency. It is possible that authorities want to keep the door slightly open to crypto itself, just in case.

That theory would help explain what’s happening in Hong Kong. The city has made very public steps to establish itself as a digital asset hub of Asia, if not the world. Hong Kong and China operate as “one country, two systems,” and Hong Kong’s relatively welcoming stance toward crypto has at least some degree of approval from Beijing. Letting crypto thrive in Hong Kong, if not the mainland, is a way for China to stay in the game while mitigating the risks.

In China, you need to look not just at what the rules say, but at how people interpret them. Referring to China’s policy as a blanket crypto ban oversimplifies the situation in one of the most important markets in the world.

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