China’s sweeping restrictions on cryptocurrency trading have failed to stamp out underground activity, with middlemen continuing to facilitate vast sums of crypto transactions despite the ban.
Three years after Beijing imposed stringent curbs on cryptocurrency trading, brokers like Chen Xin remain active in an underground financial network that helps convert significant amounts of Chinese yuan into digital currencies such as Tether. According to testimony given by Chen in a Chinese court case, he routinely handled over $100,000 in cash, swapping it for cryptocurrency via overseas trading platforms. “The money is dirty,” Chen reportedly told his wife, reflecting suspicions about the origin of the cash.
This covert network is largely invisible but crucial to sustaining Chinese demand for crypto. A Wall Street Journal investigation, based on court records and government notices, revealed how such brokers operate, enabling illicit transactions and helping individuals circumvent capital controls. In some instances, criminal groups use crypto to launder money, bolstering syndicates tied to international crimes such as drug trafficking.
For middle-class citizens, crypto provides a secretive means of transferring funds abroad, bypassing Beijing’s strict rules capping individual foreign exchange purchases at $50,000 annually. Blockchain data firm Chainalysis estimates that $95 billion flowed through Chinese-based over-the-counter (OTC) brokers between late 2023 and mid-2024, more than doubling the volume recorded in the same period two years prior.
China’s share of global crypto activity remains significant despite its restrictions, trailing only behind the United States. Rising demand for digital assets may continue to influence cryptocurrency prices, with Bitcoin recently surpassing $100,000 in value.
Workarounds Amidst Beijing’s Crackdown
On platforms like WeChat, users share strategies for evading government controls, including instructions on signing up for foreign trading platforms. By using virtual private networks (VPNs) and offshore shell companies, users bypass restrictions and access global crypto exchanges like Binance and OKX.
Although both platforms have publicly stated compliance with Chinese regulations and deny serving mainland users, loopholes persist. For instance, Jack Ding, a legal expert based in Beijing, explained that offshore accounts allow users to skirt identity verification checks and conduct transactions undetected.
Authorities have stepped up enforcement in response. Local officials in some regions have conducted door-to-door campaigns warning residents against crypto trading. In Jiangsu province, one ring processed $150 million worth of yuan into Australian dollars via Tether before its operators were prosecuted for illegal business activities in late 2023.
State media reported another case involving a $2 billion underground trading ring that was dismantled the same year. Police arrested 74 individuals linked to the operation, which funneled money through the underground banking system and converted it into Tether.
Crypto’s Growing Allure Among Chinese Youth
Despite government efforts to clamp down, cryptocurrencies remain attractive to many young Chinese. Amid a sluggish economy and a depreciating yuan, digital assets are seen as a trendy investment offering potential protection against economic uncertainty. “In China, cryptocurrencies represent a kind of fintech innovation that is widely perceived as new, trendy, and innovative among the younger generation,” said Maggie Hu, an assistant professor at Baruch College.
Chen Xin’s case illustrates the critical role small-time brokers play in this ecosystem. He testified about working with other brokers, using accounts on Binance and OKX to execute trades worth tens of thousands of dollars for clients, including a Cambodian casino operator.
Chinese authorities have vowed to maintain a tough stance on cryptocurrency activity, citing its links to money laundering and risks to the yuan’s stability. “The opacity of crypto trading, its low costs, and the speed of cross-border transfers present major challenges for combating financial crimes,” stated China’s central bank.
Yet, as crypto adoption grows globally and underground networks continue to adapt, Beijing faces an uphill battle to enforce its ban.
