Despite China’s apparent ban on cryptocurrencies, the trading volume of digital assets among Chinese citizens shows that cryptocurrencies are deeply intertwined with a significant part of China’s economy.
In late 2021, when the global cryptocurrency market was valued at over $2 trillion, China announced a ban on cryptocurrency mining and trading, severely impacting cryptocurrency prices and the global market value of these digital assets. In 2017, China had already prohibited cryptocurrency exchanges and conversions between cryptocurrencies and the yuan. However, whispers of a ban on trading and mining that had been circulating since 2019 did not materialize until two key events occurred: first, China unveiled its digital yuan, or central bank digital currency, about a year before the cryptocurrency ban; second, the Biden administration took office in the U.S., becoming the most crypto-hostile government since Bitcoin’s inception and further straining U.S.-China relations.
The ban on cryptocurrency mining and trading in China may have been the most significant event in 2021, with its impact on the blockchain world felt strongly in 2022. However, in the broader and more complex picture, China seems to be following a grand strategic plan. The country aims to become the world’s leading economy, and in this path, it faces a significant confrontation with the U.S. dollar using the yuan or other monetary tools, such as the BRICS digital currency initiative.
The Longstanding Struggle Between the Yuan and the Dollar
The struggle between the yuan and the dollar is decades-old. China had long kept the yuan undervalued to enable Chinese goods to conquer global markets and outcompete major rivals like Germany, Japan, and especially the U.S. China has a rich history of using monetary and currency tools for strategic advantage, and there is no doubt about its willingness to employ specific monetary policies to achieve its goals.
On the surface, traditional thinking in many central banks suggests that China banned cryptocurrencies to control its balance of payments, combat money laundering, and safeguard the financial system. However, this traditional perspective aligns with more conventional views. Today, data shows that cryptocurrencies play a minimal role in money laundering, and the claim that buying cryptocurrencies equates to capital flight is weak and rarely voiced, even by the most skeptical central bankers. Additionally, cryptocurrency mining can be highly profitable; neither China nor the ideas that have rapidly transformed it into an industrial and economic giant are ordinary.
Why did China ban cryptocurrency trading and mining?
Two answers can be offered for this question:
Answer One: China acted to ban cryptocurrencies based on traditional reasons mentioned earlier, as well as its exaggerated hopes for the digital yuan. This is a standard, conventional response to the question. Accepting this answer assumes that China’s approach is a traditional one, considering them simple enough to believe that the digital yuan is a real cryptocurrency and that its popularity and adoption would rival that of Bitcoin and Ethereum.
Answer Two: China had a different game in mind. Let’s explore this hypothesis together. The smart leaders of China executed a deception operation. This operation aimed to confuse the U.S. about the extent of cryptocurrency use and its significance to China, as well as China’s plans to undermine the U.S. dollar. With the rise of an anti-crypto administration in the U.S., the visible dependence and importance of cryptocurrencies for China could have motivated the U.S. to take stronger action against them. Moreover, we should consider China’s influence in the global cryptocurrency market. The headquarters of Tether (USDT), the most important and widely used digital dollar, is in Hong Kong. Nearly half—or more precisely 42.9%—of all Tether in the world is created and traded on the Tron network using the TRC20 protocol. Tron itself was created by another Chinese individual, Justin Sun, who hails from Xining, China, and now resides in Singapore.
The most powerful person in the crypto world is also Chinese—CZ, the CEO and founder of Binance, the largest cryptocurrency exchange globally. He is originally from Jiangsu, China, and came up with the idea for Binance while living in Shanghai. These are just small indicators of the influence that prominent Chinese individuals have in the crypto world, and the connections, people, companies, and influential projects go much deeper than what’s mentioned here.
At this point, we could argue that the involvement of several influential Chinese individuals and companies in the cryptocurrency world doesn’t necessarily imply that China’s ban on cryptocurrencies was part of a grand deception. Yes, up until now, everything pointed to a traditional ban by China and an ordinary situation, but a major news bomb changed the story dramatically.
$90 Billion in Crypto Trades by Chinese Users on Binance
On August 2, 2023, The Wall Street Journal reported a surprising revelation: despite the ban on cryptocurrency trading in China, Chinese users exchanged $90 billion worth of assets on the Binance exchange in the past month. $90 billion is a huge figure, accounting for 20% of all transactions on Binance.
The Wall Street Journal report could have been seen as a weak claim but it has historical backing. On March 27, 2023, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance, citing illegal trading as one of the complaints. This is noteworthy because the CFTC usually has a more lenient approach toward cryptocurrencies and crypto companies. Additionally, the U.S. Securities and Exchange Commission (SEC), which has a more hostile stance toward crypto, filed a comprehensive lawsuit with 13 allegations against Binance on June 5, 2023. Both lawsuits highlighted Binance’s lax approach to user access and identity verification in compliance with U.S. regulations.
Often, what appears in the media has already been discovered and investigated by governmental and security agencies. A report in a publication like The Wall Street Journal could be part of the U.S. strategy to counter China’s covert use of cryptocurrencies. Several lawsuits against Binance, serious restrictions on its operations in the U.S., biased news, cases against Chinese actors, and likely future actions against Tether could all be elements of the U.S. plan.
China: Outward Ban, Inward Crypto Trading
Despite China’s strict control over the internet and financial flows within the country, the claim that China has imposed a superficial ban on cryptocurrencies but continues to integrate them into significant parts of its economy is not far-fetched. How could $90 billion worth of assets be traded monthly by Chinese users on a single online platform without the government knowing? In response to The Wall Street Journal’s inquiry regarding these trades, a Binance spokesperson offered only one sentence: “Access to Binance in China is blocked.” In other words, the report of $90 billion in trades wasn’t denied—neither by Binance nor by the Chinese government. It’s important to emphasize that Binance is just one centralized crypto exchange, and China certainly uses a variety of other tools, especially decentralized exchanges (DEX), to maintain a presence and influence in the cryptocurrency market.
China has revealed half of its cryptocurrency sword against the U.S. In recent weeks, there have been significant moves in Hong Kong to transform the free island into a regional and global hub for cryptocurrencies—an island that is closely trailed by a fast-rising competitor, the UAE.
In another article, we’ve explored how China uses Hong Kong to exert power in the global cryptocurrency market. It’s essential to remember that China, a country actively opposing the U.S., has a strategic plan to bring the U.S. dollar to its knees, and its deceptive play in the crypto world is part of its broader effort, particularly aimed at Uncle Sam.
The Wall Street Journal’s revelation shows that, just as China previously engaged in yuan devaluation and used monetary tools to counter the U.S., in the last two years, China has had a significant impact on the cryptocurrency world while feigning a crypto ban. The design and execution of this historic deception offer a major lesson for taking action against the U.S. dollar and show the world how de-dollarization could be achieved.
