Crypto Trading in China Remains Active After Ban, Firms Offer Exchange Insurance
According to Shanghai-based cryptocurrency startup InVault CEO Kenneth Xu, crypto trading in China remains active despite the country’s strict ban on digital asset investment.
Many investors in mainland are relying on offshore exchanges and operators, most of them based in Hong Kong, to purchase cryptocurrencies like bitcoin and Ethereum.
Hong Kong-based publication South China Morning Post reported on September 8 that traders have been able to circumvent ban on crypto trading through the utilization of VPNs and stablecoins such as Tether (USDT), to trade cryptocurrencies on global exchanges.
How is Exchanges Still Able to Support Chinese Investors?
In an interview with SCMP, Hong Kong and Taiwan-based digital asset exchange executive Terence Tsang said that the tightening of regulations by the government was targeted at exchanges that pretended to be based outside of China but were actually operating inside the country.
“The latest warning and potentially increased monitoring of foreign platforms is targeted at a batch of smaller exchanges that had claimed to be foreign entities, but are in fact operating in China claiming they have outsourced their operations to a Chinese company,” Tsang said.
To eliminate the possibility of exchanges operating in mainland, the government requested Alipay, the largest fintech network in the world valued at more than $60 billion, to suspend or block accounts suspected to be connected to cryptocurrency exchanges.
Still, the government is struggling to completely ban out trading in offshore markets, especially in Hong Kong. In theory, local financial authorities could engage with commercial banks and evaluate every suspicious wire transfer made from China to neighboring countries.
As of current, the priority of the government is in cracking down on millionaire investors storing their wealth in foreign assets and savings accounts, and it is highly impractical for the country to shift its focus to censoring cryptocurrency-related transactions.
In Hong Kong, it is relatively simple for businesses and individuals to create shell companies to obtain bank accounts that are completely independent of cryptocurrency exchanges. Hence, even if the government had pivoted its crackdown on overseas savings accounts to crypto trading, it would have to evaluate the trail of funds from Chinese bank accounts to Hong Kong shell accounts to local exchanges.
The government has made it as uncomfortable and uneasy as possible for investors to allocate their holdings in yuan and other assets into cryptocurrencies. But, it has proven to be difficult to outright ban cryptocurrency trading.
Crypto Custody and Insurance
InVault, a startup with headquarters in Shanghai, raised over $5.85 million from venture capital funds Matrix Partners China to provide crypto custody and vault systems to institutions.
Already, the company has been asked by an exchange to keep 1 million Ethereum (ETH) in its vault.
Xu, the CEO of InVault, said:
“Today, the vast majority of cryptocurrency exchanges globally still involve their senior management in managing the transfer of digital tokens ordered by clients. Putting the private keys to your cryptocurrency assets in the hands of senior management is akin to putting all your money in their control. In conventional stock trading, securities are all held at a central depository and not by exchanges. The same should apply in the digital token arena too.”
It is only possible for a company like InVault to raise millions of dollars to operate in the financial hub of China as a cryptocurrency vault service provider if exchanges are seeing an increase in demand or activity in the cryptocurrency sector.
So far, the efforts of financial regulators to ban crypto trading have been nullified by offshore exchanges and over-the-counter (OTC) platforms. The future of China’s crypto market remains to be seen in the long-term.