In September 2021, the Chinese government banned all cryptocurrency-related transactions, including trading, exchanging, and any form of transactional use. Yet, in September 2024, global news sources reported that over the past year, Chinese over-the-counter crypto brokers had facilitated a staggering $75 billion in transactions. Quite a substantial number for something that's banned, wouldn’t you agree? Let’s explore where this money came from and why China’s underground digital business continues to thrive.
China's Cryptocurrency History
China was one of the first countries to recognize the potential of cryptocurrencies, without excessive fear or hesitation. This is characteristic of the nation – it tends to swiftly react to technological advancements, study them, and adapt quickly. The invention of Bitcoin (BTC) in 2008 did not go unnoticed, and by 2011, BTC China, the country’s first crypto exchange, had launched. By 2013, two years before Ethereum (ETH) was created, digital decentralized currencies were officially accepted as a payment method.
Throughout much of 2020, China accounted for approximately 67% of the world’s monthly Bitcoin hash rate. Up until May 2021, the country was home to nearly half of the world’s Bitcoin mining. Major crypto miners were flocking to China due to its favorable conditions and low fees. However, in May 2021, the State Council announced stricter crackdowns on Bitcoin mining.
Cryptocurrency restrictions were introduced gradually – new limitations were added, services stopped serving clients, and so on – until on September 24, 2021, the People's Bank of China declared all crypto-related activities illegal, including mining, purchasing, selling, exchanging, storing, and processing transactions.
One might ask, why did crypto assets, which had long brought significant revenue and bolstered China’s influence on the global stage, suddenly become a threat to the government? The answer is fairly straightforward: the authorities believed that cryptocurrency could destabilize the national currency during a time when the country was focused on expanding its economy.
However, for many, these reasons weren’t convincing enough, leading analysts to dig deeper.
Why Did China Ban Cryptocurrencies?
It turns out the Chinese government had at least three key reasons for banning crypto mining and operations.
- Cryptocurrencies Threatened the Digital Yuan
As mentioned earlier, in 2021, China began expanding its economic policy and promoting its official digital currency – digital yuan. At that time, the currency was still in the testing phase, so it made perfect sense to support it and eliminate potential competitors. Authorities also stated that "virtual currencies have no real value."
- China Aimed to Improve Its Environmental Impact
In 2021, China’s leadership was actively seeking to improve the country's environmental conditions, and supporting the crypto mining industry clearly contradicted this goal. President Xi Jinping stated that China aimed to reach peak carbon emissions by 2030, after which it would work towards reduction, with the goal of achieving carbon neutrality by 2060. However, these calculations did not account for the blockchain. The energy consumption of crypto mining could have led to additional emissions of 130 million tons of carbon, something the government could not afford.
- Cryptocurrencies Could Undermine China’s Financial System
The Chinese authorities concluded that crypto transactions could potentially enable capital flight from the country, including illegal transfers. Facilitating fraud and money laundering operations would not only tarnish the government's image but also weaken its control over the situation – another undesirable prospect.
The Growth of China’s Shadow Crypto Market
China’s departure from the global crypto market opened the door for the U.S. and Kazakhstan to become top mining destinations. However, analysts began noticing increased activity in China’s “gray economic zone,” suspecting that over-the-counter brokers had taken the reins.
Indeed, by 2024, more than $75 billion had passed through Chinese crypto brokers, as reported by Bloomberg analysts who relied on data from Chainalysis. They also noted that around 55% of all transfers were transactions exceeding $1 million.
Authorities have been unable to pinpoint exactly who is conducting these transactions, but it is known that both individuals and international companies are using cryptocurrencies for cross-border transfers.
In response, Chinese regulators have ramped up efforts to monitor business activities and transactions, particularly those suspected of being linked to fraud, terrorism, money laundering, and sanction evasion.
Conclusion
Despite China’s cryptocurrency ban being backed by substantial reasons, it has not completely shielded the country from the influence of this sector. Mining has moved underground, environmental harm continues, and the government’s authority is beginning to erode as some entrepreneurs increasingly ignore its prohibitions. Whether the tightening regulatory measures will lead to further crackdowns – and if China’s approach will become as aggressive as the U.S. Securities and Exchange Commission (SEC) – is something we’ll likely find out soon.
If you want to learn more interesting facts about crypto then check out our blog! You might like our article “Bitcoin (BTC) Wallets: A Complete Guide”.
