China has never completely banned cryptocurrencies.

Despite numerous Western media reports about China's 'ban,' cryptocurrency trading remains highly active in the country. In just one month last year, Binance was reported to have conducted $90 billion in cryptocurrency transactions in China, making it the largest market for the world's largest exchange.


It's fascinating when this story is understood as evidence of the decentralized power of cryptocurrency to evade government control, and there's certainly some truth to it. However, it's just the tip of the iceberg. Cryptocurrency hasn't disappeared in China because it's not completely banned.

This contrasts sharply with the impression often conveyed by Western media, which frequently references China's 'ban' or restrictions on cryptocurrency trading. However, when some industry insiders here are asked whether they believe the assertion that cryptocurrencies are banned in China is accurate or not, the answer is a resounding no. Their general understanding is that individuals holding or trading cryptocurrencies are not illegal, but their activities are not legally protected.

This perception is not only evident in individual interviews. An article by authors from a court in Fujian province notes that 'laws and administrative policies do not completely ban virtual currency transactions.' A Chinese law firm has published a detailed article on the topic stating, 'Currently, our country does not have any laws or administrative regulations that prohibit Bitcoin trading activities.'

Implicit Understanding

It's not hard to understand why many believe that crypto is completely banned in China. The Chinese government has clearly cracked down on the industry and does not permit many related activities.

However, in China, what is left unsaid often carries particular significance. People tend to pay attention to what is not explicitly restricted. They then find ways to operate within those relatively open spaces.

In China, you not only need to look at what the rules say but also how people interpret and navigate them.

Let's take some time to review some of the more prominent cryptocurrency crackdowns and what they actually stated. In 2013, China restricted the participation of financial institutions and payment services with Bitcoin. In 2017, China banned ICOs. China also made it clear that virtual currency exchanges are no longer welcome to operate openly there. Prior to the 2017 crackdown, China dominated the Bitcoin trading volume globally. The crackdown didn't extinguish trading activities on the mainland but certainly pushed it into a gray area. BTCC, China's longest-running Bitcoin exchange, closed its operations in China in 2017.

An even more extensive crackdown occurred in 2021. This text was approved by 10 official Chinese agencies, imposing various restrictions. Specifically, virtual currency does not have the legal status of fiat currency. In other words, Bitcoin is not considered legal tender. Business activities related to virtual currency are seen as illegal financial activities. Domestic exchanges should not act as intermediaries for buying and selling virtual currency, and foreign exchanges providing services to Chinese residents through the internet are deemed illegal. There are other restrictions as well.

In 2021, China also aggressively cracked down on domestic mining activities. However, amid all these restrictions, there are still notable loopholes. For example, the 2021 regulations seemingly do not restrict individuals from holding coins. They also appear not to limit peer-to-peer transactions between individuals.

Another crucial section in the 2021 document sheds light on China's official stance towards digital currency. The passage describes the legal risks associated with engaging in virtual currency investment and trading. Specifically, if someone invests in virtual currency and violates public order and morality, related civil legal actions will not be effective, and individuals will bear losses.

In other words, if you lose your life savings on some meme coin, don't cry to the government about it. Individual activities may not necessarily be legally protected, but that doesn't mean they are banned.

Social Stability

The above passages may seem like digging for clues. It could be argued that China's regulations make trading so difficult that it effectively leads to an effective ban. However, to understand the actual situation, one must not only look at the rules themselves but also examine how those rules are implemented.

Nothing is secret about China's cryptocurrency crackdown not preventing trading. According to Chainalysis, Chinese traders generated a net profit of $86 billion from crypto activities from July 2022 to June 2023. In some cases, individuals continue to use accounts they opened on foreign exchanges. Some turn to virtual private networks for privacy. Peer-to-peer transactions through social media apps like WeChat or Telegram are also feasible.

There are stories of people establishing companies abroad through intermediaries and then using those foreign entities to complete Know Your Customer (KYC) verification on exchanges.

The government finds it challenging to stop a decentralized currency like Bitcoin. However, the widespread narrative in Western media – that people are secretly trading behind the Chinese government's back – is not entirely accurate. In other words, if Binance were conducting $90 billion worth of transactions in China, the government might have known something.

In fact, the WSJ's article also notes that local law enforcement closely collaborates with Binance to identify criminal activities among over 900,000 active users on the platform. After investigating online exchanges and interviewing retail investors, Reuters found that 'accessing Bitcoin in China is not overly difficult.'

The fact that many transactions persist after the 'ban' shows that China has never intended to wipe out cryptocurrencies entirely. Instead, the main goal is to raise entry barriers. In this sense, the new rules are extremely effective. Making transactions more inconvenient will help prevent widespread access to cryptocurrencies by many casual investors. The last thing Beijing wants is for those investors to hit the streets in protest of their losses. It all stems from a key principle in China's policy: maintaining social stability.

China has reasons to be wary of cryptocurrencies. For instance, they don't want people using it to evade capital controls. At the same time, the country has long recognized the potential of blockchain technology, and Beijing even issued a Whitepaper on Web3. The nation has ambitious plans for the central bank digital currency. Perhaps authorities want to open the door for state-backed digital currency in this case.

This hypothesis may help explain what's happening in Hong Kong. The city has taken overt steps to become Asia's, if not the world's, digital asset hub. Hong Kong and China operate under the 'one country, two systems' principle, and Hong Kong's relatively favorable stance towards cryptocurrencies has at least received some level of approval from Beijing. Fostering strong digital currencies in Hong Kong is a way for China to continue participating in the game while minimizing risks.