A series of police raids aimed at curbing billions of dollars in illegal foreign exchange transactions in China suggests that, despite Beijing's ban on digital asset trading, cryptocurrency is still widely used in the country.
In May alone, the police uncovered several cases involving cryptocurrencies. These included an underground bank that illegally transferred 13.8 billion yuan (approximately $1.9 billion), a criminal gang involved in illegal currency exchanges amounting to about 2 billion yuan, and various illegal money changers, some of whom conducted transactions exceeding 1 billion yuan.
These raids took place in Beijing, the northeastern province of Jilin, and the southwestern city of Chengdu, receiving widespread coverage from municipal authorities and official media. These actions further demonstrate that, over two years after Beijing banned cryptocurrency trading, the demand for digital assets in the Chinese market remains strong.
The ban reflects the government's concerns over money laundering, capital outflows, and the environmental impact of energy-intensive Bitcoin mining. However, despite the ban, Chinese citizens remain eager for digital assets, viewing them as an alternative investment amid falling real estate prices or as a means to circumvent restrictions on overseas transfers.
"Porous" Ban
Chengyi Ong, Director of Policy for APAC at Chainalysis Inc., stated, "There is still a significant amount of crypto activity in China. This could be partly due to the porous nature of the ban or ineffective enforcement, but also due to the decentralized and peer-to-peer nature of crypto activities."
Because software can obscure locations, it's challenging to determine the whereabouts of digital asset traders. Chainalysis conducted an in-depth study of the blockchain and estimated that about $86 billion worth of cryptocurrency flowed into China in the 12 months leading up to June 2023—although this figure is far below pre-ban levels, it remains considerable on a global scale.
The Chengdu Public Security Bureau published a report on social media platform WeChat, detailing a case involving the transfer of 13.8 billion yuan. The report stated that since early 2021, 193 individuals had been arrested for related activities, noting that the stablecoin Tether was used to illegally transfer funds overseas.
The Panshi Public Security Bureau in Jilin Province posted on WeChat that the gang was involved in the illegal transfer of 2 billion yuan, using over-the-counter transactions to purchase digital tokens and help convert yuan into Korean won.
Underground Gangs
Beijing police reported dismantling 11 underground crime syndicates nationwide, some of which used virtual currencies to conceal their illegal activities. According to a Xinhua News Agency report broadcast by state television CCTV, some of these illegal money changers conducted transactions exceeding 1 billion yuan.
Last year, much information about Chinese cryptocurrency trading activities came to light. For example, data from the collapsed FTX exchange revealed many Chinese citizens using crypto platforms and described industry insiders' methods for circumventing Beijing's restrictions.
Although Hong Kong permits digital asset trading and pivoted towards becoming a crypto hub at the end of 2022, few commentators believe Beijing will relax its official restrictions on the mainland. Regulatory requirements also make it difficult for Chinese citizens to invest in cryptocurrencies in Hong Kong.
Ong remarked, "Over the years, we've seen that bans usually fail to effectively eliminate crypto activities and may instead create informal grey markets that are harder to track and prevent illegal activities."
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