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Binance Trades $90 Billion in China Where Crypto is Illegal: WSJ Finds

Published August 2, 2023 4:56 PM
Teuta Franjkovic
Published August 2, 2023 4:56 PM
Key Takeaways
  • After an SEC lawsuit in June, Binance is looking to enter additional markets
  • May saw the trading of tokens on Binance worth $90 billion in China
  • For all its illegality, China remains Binance’s largest market, with around a million active users

The largest cryptocurrency exchange in the world, Binance, was expected to depart China in 2021 after that nation outlawed cryptocurrency trading.

Almost two years later, the data shows  that users transacted $90 billion worth of cryptocurrency-related assets in China in a single month. Removing trades from a selection of very large dealers, the transactions made China Binance’s biggest market by far, accounting for 20% of volume globally.

According to current and former employees, Binance openly discusses China’s relevance internally, the Wall Street Journal reports .

Furthermore, some current and former employees claim that despite the ban, the exchange’s investigative team collaborates closely with Chinese law enforcement to identify possible criminal activities among the more than 900,000 active users in the nation.

Binance invests in China even it's illegal
Credit: WSJ.com

Binance is currently dealing with a regulatory crackdown partly caused by the company’s worldwide secrecy. In June, the U.S. Securities and Exchange Commission filed a lawsuit against Changpeng Zhao, the creator of Binance, alleging that the company was operating unlawfully and squandering consumer cash. A Justice Department probe into Binance is still ongoing. Its market share among American customers has virtually vanished, and out of its 8,000 worldwide jobs, the company just laid off over 1,000 employees.

Operating in China Even If Illegal?

The previously unknown extent of Binance’s presence in China provides insight into how the cryptocurrency behemoth has managed to operate covertly in areas where it is, at least officially, unwanted.

According to an internal document  outlining the process, Binance has assisted users in China in getting around limitations by sending them to various websites with Chinese domain names before redirecting them to the international exchange. The exchange’s website was blocked by China in 2017, but the document was still in circulation within the organization before the 2021 ban.

CCN reached out to Binance for commentary but did not receive a reply at the time of publishing.

The firm representative only confirmed that “the Binance.com website is blocked in China and is not accessible to China-based users,” without providing any other information.

More cryptocurrency transactions are processed globally by Binance than by most of its rivals. For Binance, maintaining its presence in China will be essential in navigating a regulatory crackdown that its executives fear could jeopardize its existence.

Binance and China

Binance’s association with China has been intricate. In 2017, Zhao, born in China but grew up in Canada, established the company in Shanghai. After a few months, the government launched the first of many successive regulatory crackdowns on cryptocurrency exchanges. Authorities were concerned that the exchanges might unlawfully transfer money from the nation. Later, Zhao claimed to have relocated Binance’s operations to Japan.

Still, Binance maintained dozens of employees in China. Leaders at its American subsidiary expressed concern about the agreement’s ramifications, including that Chinese developers would have access to customer data in the United States.

Zhao has previously stated  that the Chinese ancestry of himself and other staff members has been used to suggest a tight connection with China.

“Being labeled a criminal business in China, like with all other offshore exchanges, is the biggest challenge Binance faces today. He stated in a blog post from the previous year, “At the same time, our opposition in the West goes above and beyond to paint us as a ‘Chinese company.'”

In 2021, China tightened its regulations  on the sector and made all transactions involving cryptocurrencies illegal. It claimed that preserving social stability and national security was the goal.

Previously, Binance announced  that it will inventory platform users and move Chinese clients’ accounts to “withdrawal only” mode, preventing them from trading.

In October 2021, the company stated , “Binance has always taken its compliance obligations seriously and has always strictly complied with the relevant requirements of local regulatory agencies.”

Enforcing a Comprehensive Ban with a Delicate Approach

It seems that Chinese authorities have implemented the comprehensive ban gently.

“The Chinese cryptocurrency market is still robust, exhibiting robust transaction volumes in both centralized and decentralized services,” stated  Kim Grauer, the director of research at the cryptocurrency research firm Chainalysis. According to Chainalysis, the nation is the fourth-largest market for cryptocurrency trading, despite a brief decline following the 2021 prohibition.

Chinese users wishing to trade on Huobi, a competitor exchange to Binance, are being encouraged to apply for Dominican digital citizenship.

Initially, Zhao supported a program in Palau that offers residency cards for sale to foreigners; but, according to Binance, the company subsequently severed its ties to the scheme. Sources close to the project claim that Binance’s interest in the Palau idea sprang partly from a desire to assist Chinese users.

VPNs, which are applications that hide one’s location, are also used by cryptocurrency dealers in China and other countries to register on exchanges that are prohibited there.

A former employee who saw the data claims that Binance’s China business fell after the ban, from 24% of its total trading volume in the middle of the year to 17% by the end of 2021.

However, it resumed in 2022 and has remained high. Customers in China exchanged more than $90 billion in cryptocurrency in May 2023, according to  Binance’s “Mission Control” internal portal. The majority of the trade was in cryptocurrency-related futures contracts. The US prohibits the trade of cryptocurrency futures.

Mission Control reported that out of the 5.6 million Chinese users registered on the exchange, 911,650 were active.

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