Bitcoin Demand Persists in China Despite 2021 Ban

Despite the ban on Bitcoin in China since 2021, there remains a significant demand for the cryptocurrency among mainland residents. The nature of the ban in China is complex, as it prohibits mainlanders from investing in Bitcoin futures and spot ETFs, and bans public CNY-BTC pairings, making it difficult to track the exact amount of Bitcoin transacted. However, over-the-counter (OTC) trade allows individuals to circumvent these restrictions. OTC desks and services operate similarly to private banks, while others are collections of merchants willing to take the legal risk of selling Tether and Bitcoin for Yuan.

Chainanalysis, which has relationships with some large OTC desks, has observed an increase in trading demand for Bitcoin. The use of OTC channels in China indicates that the ban is loosely enforced or that it is challenging to fully prohibit crypto activity. Large desks also trade in Tether, a US dollar-backed stablecoin, which is used in large quantities by Chinese people. While there are rumors of physical peer-to-peer trade, most people use exchanges, especially those with China-based roots. These exchanges allow individuals to buy Bitcoin or Tether for local Yuan wires by using an address outside of the Mainland or through OTC services.

There are active signs of cryptocurrency trade all over the Internet, including the Western Internet, with active discussions in Mandarin openly discussing the trade of different tokens. Bitcoin Asia 2024 reported a large contingent of mainland Chinese attendees. In an interview, a former exchange executive from China relayed that most people she knew were buying Bitcoin from over-the-counter services that operated with major exchanges as a sort of collection of informal merchants. These desks would ask for money to be wired to local Chinese bank accounts, usually registered with a relatively unknown rural bank. Many people take their Tether and trade down on second-tier exchanges with more crypto trading pairs.

There is an outside possibility that the Chinese government could get involved with buying and/or mining Bitcoin, though this is unlikely to happen systematically. Chinese officials and professors have cautioned against China's ban on cryptocurrencies as an unwise decision, along with the mining ban. While it seems unlikely that the Chinese government will adopt Bitcoin, it also seems doubtful that it will further restrict Bitcoin more than it already is in the Mainland. Chinese courts consistently uphold its use as property. It may also be the case that the Chinese party-state might hold onto the rumored 15,000 Bitcoin it still might hold from PlusToken seizures.

With the e-CNY, China's central bank digital currency, progressing in the pilot stage but stalling out when it comes to momentum, the future of Bitcoin and China looks like an important bridge to explore. This need to drive funds outside China may continue despite short-term respite. Tether is also an interesting geopolitical trendmaker, as every Chinese person who buys USDT essentially helps support buying Treasury reserves, even if the Chinese government itself is trying to move away from Treasury debt.

Ask Aime: How does the Chinese crypto ban affect global Bitcoin demand?

As Bitcoin in Hong Kong becomes more regulated and the over-the-counter trading desks become the default way for most people to trade, Hong Kong can serve as a bridge between China and Bitcoin. However, it's clear that Hong Kong is trying to position itself as a Web3 hub, and while these steps would have been something the central authorities would step out and veto if it were genuinely concerning, the position of Hong Kong and the Chinese Mainland doesn't allow for the easy conclusion that Hong Kong is China's experimental backdrop.

The future of Bitcoin is still tied up with China. Chinese companies manufacture mining chips shipped to the United States, which is caught up in import restrictions. China's people continue buying Bitcoin and Tether despite bans, leading to dramatic geopolitical consequences and a hidden yet continued demand factor for Bitcoin.