Bitcoin's 300% surge has revived China's gray market for cryptocurrency trading, alerting regulators to financial risks.
China shut down local cryptocurrency exchanges in 2017, putting an end to a speculative market that had accounted for 90% of global bitcoin trading.
This hasn't stopped bitcoin trading
Onshore investors now trade bitcoin on Chinese exchange platforms that have moved overseas, including Huobi and OKEx. The once dormant Chinese trading chats on social media have become more cluttered.
"I came looking for investment opportunities," said Paris Chang, who opened an account with cryptocurrency exchange Binance last month.
Putting aside concerns about volatility and the recent sell-off, he said: "This market is not for the faint of heart."
China-based cryptocurrency exchanges are not licensed on the mainland, but people can easily open accounts and trade online if they upload their Chinese ID card details.
Exchanges like Binance and MXC prohibit the use of yuan and only allow trading between cryptocurrency pairs, such as bitcoin versus stablecoin tether (quotation in real time) linked to the dollar.
But Chinese investors can use peer-to-peer markets to buy USDT using the yuan, with payment made via bank cards or online transfers. This process does not violate Chinese laws.
But it appears the Chinese are transferring capital overseas with official quotas to get their USDT, under the pretext of making medical or other legitimate purchases, a regulatory source told Reuters. The loophole allows investors to circumvent China's strict capital controls.
Big Chinese capital is leaving the country
China's securities market watchdog told its regional offices last week to adopt stricter scrutiny over cryptocurrency trading, said the source, who has first-hand knowledge of the matter but is not authorized to speak to the media. . He added that overseas registered exchanges are outside Beijing's mandate.
Huang Mengqi, attorney for the Beijing DHH law firm, said the failure of regulators to govern offshore cryptocurrency exchanges could blind them to potential risks.
“People cannot be prevented from trading bitcoins, because Chinese law recognizes the value of virtual assets. Anything of value should be allowed to change hands, ”Huang said.
The lack of data and information for investors on such exchanges, however, complicates China's anti-money laundering efforts and dampens the effectiveness of capital controls, the lawyer said.
In 2020, $ 17,5 billion worth of digital assets flowed from Chinese exchanges to overseas locations, 53% more than the previous year, suggesting an increase in capital flight from China, consulting firm PeckShield said in its anti-money laundering report.
