China’s cryptocurrency market still among the strongest in the world despite Beijing’s crackdown on trade, mining of digital assets

Mainland China remains East Asia’s largest cryptocurrency market in terms of transaction turnover and ranks fourth globally, according to a new report, despite Beijing’s crackdown on the trading and mining of these digital assets.

The country recorded more than US$220 billion in total transactions between June 2021 and July 2022, surpassing that of South Korea and Japan in the same period, according to the latest report from US blockchain research firm Chainalysis.

“Chinese merchants have been using VPNs for a long time [virtual private networks] to bypass the Great Firewall,” said Zennon Kapron, founder of the fintech consultancy Kapronasia. “Some bitcoin mining has certainly continued, albeit on a smaller scale than before.”

Although China began phasing out cryptocurrency trading in 2013 and has banned mining for digital tokens since May 2021, these actions have encouraged many to avoid regulations by moving their activities underground.

Chinese special administrative regions Hong Kong and Macau are East Asia’s fifth and seventh largest markets in terms of cryptocurrency transactions, according to the Chainalysis report.

However, total transactions in mainland China fell 31 percent from the same period a year ago, reducing East Asia’s overall year-on-year transaction growth to 4 percent – ​​the slowest globally.

“The biggest reason for this is probably the decline in cryptocurrency activity in China,” the report said.

The People’s Bank of China, the country’s central bank, declared victory in September by cracking down on cryptocurrency transactions as part of efforts to maintain financial stability. Beijing views cryptocurrencies such as bitcoin as a threat to financial security and capital controls.

The latest cryptocurrency transaction data in mainland China reinforces Chainalysis’ suggestion in an earlier report that Beijing’s ban on all trading was either ineffectively or loosely enforced.

Chainalysis’ 2022 Global Crypto Adoption Index, released in September, showed mainland China ranked 10th in cryptocurrency activity, down from 13th last year, but down from fourth in 2020.

“China has done quite a bit to limit crypto use in the country and there aren’t too many levers left for them to pull,” fintech consultant Kapron said. “It is reasonable to assume that what we are seeing now in China will either be the normal engagement with crypto to expect in the future, or the lowest point we can expect to see in terms of uptake.”

There are also other schemes used to shield crypto-related endeavors from regulators’ scrutiny.

Yip Ki-nang, manager at Hong Kong-based blockchain consulting firm QuantBlock, said in September that crypto and blockchain advocates in China are using campaigns related to the metaverse and non-slingable tokens to disguise their activities.

Mainland China has also re-emerged as a major bitcoin mining hub, according to data released in May by the Cambridge Center for Alternative Finance (CCAF).

The country accounted for 20 percent of bitcoin’s total hash rate – a measure of the network’s processing power for verifying transactions and mining new cryptocurrency tokens – from September last year to January, according to the CCAF’s Cambridge Bitcoin Electricity Consumption Index, which is based on aggregated geolocation data reported by partner mining pools.

That increase in activity came after previous data suggested that China’s total hash rate had dropped to zero in July 2021, following the implementation of a comprehensive ban on cryptocurrency mining in May of the same year.

Still, Beijing has not stopped initiatives to eliminate cryptocurrency speculation in the country.

Internet regulator the Cyberspace Administration of China ordered mainland social media platforms to terminate 12,000 crypto-related accounts in August.

The collapse of the global cryptocurrency market has sparked new warnings in China that bitcoin’s value could fall much further and become worthless. An article published in June by the Economic Daily, a newspaper directly under the Central Committee of the ruling Chinese Communist Party, said investors should beware of the risk of bitcoin prices “going to zero”.

Prices of bitcoin, the world’s largest cryptocurrency in terms of trading volume, have fallen below US$20,000 after reaching a high of nearly US$69,000 last November.