Two weeks after China outlawed virtually all crypto-related activity, the industry is springing into action, announcing varying levels of restrictions for Chinese users. Some have even shut down completely.
From crypto exchanges to crypto wallet apps to crypto market data publications to decentralized mining services, at least 30 Chinese companies have released statements or changed their policies in the last two weeks. The flurry has come after Beijing released two pieces of major regulation, one focused on crypto-related finance activities, the other on mining.
Even though users in China can theoretically still use VPNs and fake identities to get around these restrictions, the latest moves from crypto companies will make their investment experience even more difficult and likely deter some from keeping at the crypto game.
Among all of the affected companies, crypto exchanges are likely the most affected, but also the most prepared. They were the target of one of the most important crypto crackdowns before this year: China's 2017 ban on Initial Coin Offerings, commonly referred to as the "Sept. 4 Incident" in the industry. At the time, crypto exchanges were singled out from other players in the industry and specifically told to shut down. It prompted most domestic exchanges to either register as overseas entities or shift their business operations abroad. Binance, currently the world's largest crypto exchange, is the best example of the latter. By doing so, it has avoided most of the heat this year.
Since the 2017 rule didn't specify that overseas exchanges were included, some of Binance's peers continued to operate from within China. Huobi, which is also among the top exchanges worldwide, registered a Seychelles-based entity and continued to allow Chinese users to open accounts there, who reportedly still contributed about 30% of the company's revenue. It also retained a significant physical presence in China, including offices and employees, until this year.
The latest policy shift has closed the Huobi loophole. Not only does the rule make it clear that overseas exchanges are violating the law if they serve Chinese users, it also says domestic employees of "overseas virtual currency exchanges" or anyone providing services to them can be punished. For Huobi and other effectively China-based crypto exchanges, it means their China-based employees are in danger if the companies don't execute a clean separation with Chinese users and their money.
The most common response from crypto platforms has been to announce a permanent suspension of new registrations from China. Huobi did so Sept. 24, Binance did so on Sept. 26, and several smaller exchanges like AEX and Gate.io have done the same.
A bigger step, which not every exchange is willing to take, is to clear out all existing users based in China. Two days after that initial announcement, Huobi said it would take this step, and would need until the end of the year to complete it. BitMart, CoinEx and KuCoin — three crypto exchanges that were also started by Chinese founders — announced similar mandates.
Another major change in how Beijing regulates crypto: criminalizing hosting, brokering or even just providing information on crypto transactions. It means a much larger group of companies and individuals now face regulatory risk.
At least three crypto wallet companies, TokenPocket, imToken and OneKey have terminated some or all services for China-based users. Market data portals, be they overseas ones like the Singapore-based CoinGecko or domestic ones like the Zhejiang-based QKL123, will no longer serve China-based IPs. Bitmain, the Beijing-based, Hong Kong-listed manufacturer of bitcoin mining machines, will no longer sell to miners in mainland China, according to CoinDesk.
For some smaller companies who may have been struggling for a while, the latest regulations are the last straw, prompting them to dissolve. At least three mining-related companies, SparkPool, BeePool and QSKG, have decided to terminate their operations globally. Four crypto exchanges announced their complete closedown date between September and November and warned users to cash out their assets before that.
Several non-crypto companies have reacted too. Alibaba posted a statement on its global sourcing website Alibaba.com, saying it is suspending the sales of any crypto mining equipment in accordance with the new regulation. Whether the ban's effect extends to Alibaba's other platforms are unclear, as currently crypto mining equipment can also be found on Alibaba's ecommerce platform AliExpress. The company didn't respond to Protocol's request for comment.
And two Chinese brokerage companies, Tiger Brokers and Futu, are taking measures to ban Chinese users from making investments in crypto-related financial products, like the Grayscale Bitcoin Trust (GBTC).
The latest regulations underscore Beijing's resolve to eliminate crypto within its borders. Many Chinese crypto companies had held out hope of walking the regulation's fine lines to continue operating within the country. Now they're waking up to a harsh new reality. Time will tell who can still pivot to survive, and who will have to give up their crypto dreams.