Running for cover: Crypto exchanges quit China

Most crypto exchanges have pulled out of China since a sweeping ban on crypto trading took effect in September.

Photo from CFP

Photo from CFP

By ZOU Luhui


China has effectively put a stop to all cryptocurrencies trading within its borders. But while many transactions are now illegal, a massive new gray area opened up during previous attempts to stop Chinese investors from accessing the crypto market.

Resistance is futile

Huobi Global is to quit mainland China entirely. All accounts will be closed by the end of the year. Binance and Oex are also off. Platforms, exchanges, and mining pools have all but disappeared from the Chinese mainland.

“I’m sorry. I wish I were brave,” said LI Lin, founder of Huobi. “I have a family to take care of. The crypto-world will carry on without us.”

And carry on it does, without Huobi, at least to some extent. Large exchanges, including Huobi, are expanding overseas. Singapore is a hot destination, likewise the Middle East. The smallest and most obscure exchanges have often been quickest on their feet. “Everyone still wants a slice of the China market,” said a platform manager. But optimists are hard to find. For most, this feels like the end.

On September 24, ten government agencies, including the central bank, made it illegal for all financial institutions, including those based overseas, to provide services to China-based crypto investors. Buying and selling of cryptos are banned as are services that facilitate crypto trading. 

The new ban closes loopholes in the previous rules. When regulators asked all crypto exchanges to shut down in September 2017  — a watershed moment known as “The September 4 Notice”— many exchanges simply moved their servers abroad and carried on as before. Some kept their China offices open and advertised themselves as brokers or advisors.

No room for doubt

This was clearly and obviously not what the government wanted. A lot has changed since 2017. Frustration was evident and the government made no effort to hide its intentions. The market is much bigger and deeper. Regulators are also more familiar with the dynamics, so the new system is more detailed and inclusive.

In May, banks and payment companies were told to handle cryptocurrencies. Then big-hitting banks and fintech companies were invited to discussions on crypto speculation. Around that time, restrictions were put on search engines and prominent social media accounts were deactivated.

Under the new rules, market making and giving advice are illegal. Staff at foreign crypto exchanges will be personally liable for dealings inside China and could be charged with fraud. Media coverage (including social media) of “virtual currencies” will be scrutinized.

Huobi has been scouting locations in Singapore and the Middle East since June. While large exchanges try to find new homes overseas, smaller ones are shutting down for good. BHEX has closed for good “in response to global regulatory requirements.” Users were given less than a month to close their positions and get their money out. “Yes, we are closing shop,” a BHEX employee told Jiemian News. “And no, not just in China. The entire site is shutting down.”

The bitter end

But some persist, even doubling down on marketing. Ads are constantly popping up on social media with generous signup bonuses and referral rewards, though many of these could be an entirely different variety of fraud.  A “customer service associate” pocketed US$800,000 while helping a customer close his account.  The victim was directed to an unknown app but never saw his coins again after he deposited them there. Huobi Global also cautioned users against fraud.

Blockchain may allow assets to be recovered but hopes are not high. Most senior managers are not in China and staff are being invited to relocate to Dubai. Everyone just hopes that they are small enough to fly under the regulatory radar.