Despite Harsher Regulations Crypto-Traders Are Able to Slip By Chinese Authorities

Regulation 2 min, 20 sec READ

by Chris Madill

Despite heavy-handed regulations imposed in China, cryptocurreny traders are still managing to slip past state regulators.

In an effort to stop the trade of virtual currencies within China, the Chinese government is taking harsher measures to counteract citizens’ access to crypto trading services. Most recently, Chinese regulators have blocked access to over 100 foreign crypto exchanges, and have also increased their scrutiny of any third-party service that allows access to crypto-related trading. Despite these increased efforts, crypto-traders are still managing to skirt regulations.

As reported by the South China Morning Post, many Chinese traders are able to access crypto exchanges who host servers outside the borders of China, often through the use of Virtual Private Networks (VPN’s). While the Chinese government is aware of this technicality and is actively scrutinizing the exchanges that try to provide services in China, it is proving difficult to find and block access to every exchange. As explained by Terence Tsang, COO of the Hong Kong-based crypto exchange, TideBit, Chinese regulators are faced with the task of finding and determining which foreign-based exchanges are in fact operating in China, and which are not. For the moment, the government is targeting

smaller exchanges that had claimed to be foreign entities but are in fact operating in China claiming they have outsourced their operations to a Chinese company [...] Those exchanges whose website landing pages are in Chinese have drawn particular scrutiny by regulators. / Terence Tsang, COO of TideBit

With crypto-traders still managing to find ways around Chinese regulations, evidence suggests that the government has turned the heat on the third-party services who facilitate access to crypto trades. Baidu, a Chinese internet company akin to Google, recently removed access to two popular chat rooms dedicated to crypto trading, and both Alibaba and Tencent have also taken similar measures to try to eliminate crypto-related activities on their platforms.

While the efforts of Chinese regulators are often cited as “too harsh” by members of the crypto-community, the light regulation of crypto markets in neighboring Hong Kong has shown that little regulation can lead to harsh consequences for traders as well. On August 3, Hong Kong exchange OKEx force-liquidated a $416 million long-position held by an individual trader due to a perceived market risk by the exchange. At the same time, the price of BTC fell, causing the exchange to be unable to cover the trader’s shortfall. In order to recover losses, OKEx used their “socialized clawback” policy to recover losses, which led to every user who held unrealized gains having to remit 18% of their profits back to the exchange. This led the crypto-community to call for tighter regulations of crypto-exchanges, and it exemplifies that light regulation can lead to increased risk for investors.