China cryptocurrency ban proves tough to enforce
Reports suggest that China’s crackdown on crypocurrency trading is proving harder to enforce than official reports have suggested.
In July the People’s Bank of China (PBOC) reported that since September 2017, when Beijing banned initial coin offerings (ICOs) and toughened its stance on crypto trading in a bid to prevent scams, Chinese yuan (CNY) usage – which once accounted for 90% of global trading volume on the cryptocurrency market — has shrunk to less than 1%.
However, a more recent report in the South China Morning Post (SCMP) suggested that China-based cryptocurrency traders are far from inactive. Many Chinese exchanges manage to circumvent the ban by rapidly switching domain names to avoid detection, hosting trading platforms on servers outside of China and operating via legal entities registered offshore.
Bypassing the ban
Enforcing China’s cryptocurrency ban is made more difficult by the presence of “client-to-client” trading platforms.
According to the SCMP, these allow individuals to exchange fiat currency for the controversial stablecoin Tether (USDT), which is then used on popular cryptocurrency exchanges outside of China accessed via virtual private networks (VPNs) which are not currently restricted in the country.
Tether combined with a VPN enables two traders to use an exchange platform notionally registered outside China as an intermediary to swap cryptocurrency for fiat currency and vice versa.
To date, Chinese regulators have blocked access to a total of 124 offshore crypto-exchanges providing services to Chinese investors, but the distributed nature of the cryptocurrency trading environment makes it practically impossible to impose a total shutdown of illicit trading.