China’s government recently reported that its crackdown on cryptocurrencies has been successful as it claimed that bitcoin (BTC) to Chinese yuan (CNY) trades now accounts for less than 1% of global trading volume. However, a closer investigation reveals that local digital currency traders have found various ways to bypass the government-imposed restrictions on crypto.

As covered, giant payment processors like Alipay have also attempted to prevent crypto-related activity in China by banning accounts engaging in over-the-counter (OTC) bitcoin trading. However, local cryptocurrency exchanges and several others located in countries abroad have reportedly found ways to remain accessible to Chinese traders.

124 Crypto Exchanges Still Accessible

According to the South China Morning Post (SCMP) and the state-owned Shanghai Securities Times, the nation’s regulators identified 124 digital asset exchanges that have “illegally” been providing crypto trading services to Chinese residents. In order to bypass the government-led crackdown, the exchanges have been frequently modifying their domain names.

These regular (and intentional) changes in the names and addresses of crypto websites have now made it difficult to effectively shut down digital currency trading in China, the SCMP noted. Moreover, many local exchanges have shifted their operations and servers to locations outside of mainland China, making it almost impossible to track and prevent cryptocurrency trading.

Commenting on the challenges Chinese regulators are facing as they attempt to restrict crypto trading, Hong Kong-based exchange TideBit’s COO Terence Tsang revealed: 

“The latest warning and potentially increased monitoring of foreign platforms is targeted at a batch of 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

Crypto Trading Volume Drops 33%

In response to reports of the Chinese government increasing its scrutiny over illegal digital asset exchanges, crypto trading volume in the country reportedly dropped 33%. Presumably, as local traders transferred their crypto assets to cold storage to avoid potential risks of losing their funds in case the exchanges get shut down.

As covered, Chinese crypto investors had already been engaging in peer-to-peer (P2P) trading when the nation’s government moved toward banning digital currency exchanges and initial coin offerings (ICOs) last year. These types of transactions usually involve transferring cryptocurrencies from one user wallet to another, without requiring a centralized exchange.

In most cases, a virtual private network (VPN) service is used to bypass the Great Firewall of China and then fiat currency is converted to Tether (USDT). The USDT is then used to pay for cryptocurrencies the user wants to purchase.

The majority of expats in China and many local citizens and businesses use VPN services to access popular websites like Facebook, Google, and Youtube which, among numerous others, have been blocked in the country.