China Crypto Trading Thrives Underground Despite Regulatory Grip: Report

Key Takeaways

• Chinese crypto OTC trading surged to $23.7 billion in the second quarter of 2024.
• China imposed a blanket ban on crypto-related activities in 2021.
• Chainalysis suggests that the real scale of underground crypto trading activities could be much larger than the data indicates.

China was among the first countries to impose a blanket ban on all crypto-related activities in 2021. However, despite strict regulatory policies, Chinese traders have found a way to bypass the national ban.

A recent report  from Chainalysis highlights the growing trend of underground crypto trading in China via over-the-counter (OTC) desks.

Crypto Trading Volume Surge to $23.7 Billion in 2024

While the Chinese authoritarian government continues to muzzle crypto-linked activities, fearing a threat to national financial sovereignty, underground traders continue to find ways to circumvent the ban. As a result, the country’s crypto trading activity has significantly increased in recent years. 

By extension, Virtual Private Networks (VPNs) and decentralized exchanges have also surged, with Over-the-Counter (OTC) trading desks becoming a popular means of facilitating large-scale transactions.

According to Chainalysis data, the total crypto trading volume in China via OTC desks reached $23.7 billion in 2024. In Q2 2024, the volume tripled compared to the same period in 2021, when the ban was first imposed.

The report linked underground Chinese traders’ surging crypto trading appetite to the sluggish stock market. According to the data, Chinese OTC desks achieved their highest trading volume in the first quarter of 2024, buoyed by market enthusiasm at the time. 

Unlike centralized exchanges, OTC trading desks enable trades between two parties without disclosing trade details to the public through exchange order books or other means. These desks serve as matchmakers, facilitating large-scale transactions between buyers and sellers, similar to peer-to-peer exchanges.

This is why it’s worth noting that the Chainalysis data may not reflect the full extent of underground crypto trading activity in China. Traders often connect via social media groups and crypto trading is also carried out through networks nested in a service provider, obscuring the real volume.

China’s Blanket Ban Not Effective?

It’s not just crypto trading that has surged post-ban; Bitcoin mining has also seen a resurgence since the ban in 2021.

In 2021, China was the largest Bitcoin mining hub, accounting for nearly 50% of the BTC network’s hash rate. However, immediately after the ban, the number plummeted, but within a year, Bitcoin mining operations had bounced back to full scale despite repeated crackdowns on mining activities.

Despite the ban on crypto tokens and other Web3 products, China has shown a strong appetite for non-fungible tokens (NFTs) and metaverses. Chinese courts have addressed numerous cases of crypto and NFT theft and, in certain instances, have ruled that crypto assets like Bitcoin are akin to personal property.

Given China’s closed social media and internet ecosystem, which has limited access to the outside world, the true scope of crypto-focused activities is challenging to track. Nevertheless, with Hong Kong emerging as a crypto hub with pro-crypto regulations, many speculate that the nation’s pro-crypto stance is a telling sign that mainland Chinese regulators may be softening their stance on crypto.

About the Author

Prashant Jha

Prashant Jha is a crypto-journalist focused on the US and UK markets, his interests lie in blockchain technology and crypto adoption across emerging economies.

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