(Bloomberg) — Police raids aimed at thwarting billions of dollars in illicit foreign currency transactions in China have highlighted the continuing use of cryptocurrencies in the country despite Beijing’s ban on digital asset trading.
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In May alone, suspected cryptocurrency-related cases included underground banks involved in the illegal transfer of 13.8 billion yuan ($1.9 billion), gangs allegedly involved in the illegal conversion of around 2 billion yuan, and illegal money exchanges that in some cases traded more than 1 billion yuan.
The raids, which spanned Beijing, the northeastern province of Jilin and the southwestern city of Chengdu, were reported by city authorities and state media and were another sign that Chinese demand continues to play a major role in the digital asset market, more than two years after Beijing banned crypto trading.
The ban reflects concerns about money laundering, currency outflows and the environmental damage caused by energy-intensive bitcoin mining, but Chinese citizens are still thought to be eager to buy the digital asset as an alternative investment after falling property prices and as a way to get around restrictions on sending money overseas.
“Porous” curbs
“There is still a significant amount of crypto trading taking place in China,” said Chengyi Ong, head of Asia Pacific policy at Chainalysis. “This may be due in part to weak or weakly enforced bans, but it is also due to the fact that crypto trading is decentralized and often peer-to-peer.”
Tracking where digital asset traders are based is difficult because their software can hide their location. Chainalysis scrutinized blockchain data and estimated that about $86 billion in crypto flowed into China in the 12 months ending in June 2023. That's a significant drop from pre-ban levels, but still a significant amount globally.
A report on the case, involving transfers worth 13.8 billion yuan, was published by the Chengdu Municipal Public Security Bureau via social media platform WeChat. The post said 193 people were arrested in activities dating back to early 2021, adding that the Tether stablecoin was being used to make illegal international remittances.
According to a WeChat post from the Panshi City Public Security Bureau in Jilin Province, the group, which allegedly transferred 2 billion yuan illegally, obtained the digital tokens over the counter in order to exchange Chinese yuan for South Korean won.
Underground Gang
In one case involving illegal currency exchange operators with transaction volumes exceeding 1 billion yuan, Beijing police claimed to have destroyed 11 underground rings across the country, some of which were using cryptocurrencies to hide their activities, according to a Xinhua report carried by state broadcaster CCTV.
The past year has offered numerous glimpses into China's crypto trading activities, from creditor profiles for the failed FTX exchange, citizens who said they were using cryptocurrency platforms, and industry insiders' descriptions of how to circumvent Beijing's regulations.
Hong Kong allows trading of digital assets and has pivoted to become a crypto hub in late 2022, but few commentators expect Beijing to ease official restrictions in mainland China, which also deny Chinese nationals easy access to crypto investments in Hong Kong.
“What we've seen over the years is that bans are generally not effective at stamping out cryptocurrency trading, but rather can create informal grey markets that are hard to track and cut off illicit activity,” Ong said.
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