KEY TAKEAWAYS:
- Following an SEC legal case in June, Binance is seeking to expand into more markets.
- In May, token trading worth $90 billion took place on Binance within China.
- Despite its illicit nature, China continues to be Binance’s primary market, boasting approximately a million active users.
With resolute determination, Binance, the world’s foremost cryptocurrency exchange, anticipated its departure from China in 2021 following the nation’s cryptocurrency trading prohibition.
Fast forward nearly two years, and the figures speak volumes: an astonishing $90 billion worth of cryptocurrency-related assets exchanged hands in China within a single month. Strikingly, even after excluding trades by major players, these transactions have propelled China to the forefront as Binance’s most substantial market, commanding a remarkable 20% of the global trading volume.
The Wall Street Journal’s insights reveal that China’s pivotal role is an active topic within Binance’s internal discourse, underscoring its significance.
Remarkably, certain present and former Binance personnel assert that, despite the regulatory ban, the exchange’s investigative unit maintains a close partnership with Chinese law enforcement. Together, they diligently identify potential illicit activities within the expansive user base of over 900,000 active accounts in China.
Navigating a complex regulatory landscape, Binance is confronting the aftermath of a global regulatory crackdown, partly stemming from its penchant for secrecy. In a bold legal move, the U.S. Securities and Exchange Commission launched a lawsuit against Binance’s visionary, Changpeng Zhao, citing alleged unlawful operations and mishandling of consumer funds. Simultaneously, an ongoing Justice Department inquiry further underscores the challenges faced by the exchange. The once robust market share among American clients has dwindled, leading to a substantial reduction in the workforce—with over 1,000 positions eliminated from its 8,000-strong global workforce.
Operating in China Even If Illegal?
Binance’s previously undisclosed extent of operation within China underscores the remarkable strategies employed by this cryptocurrency giant to function discreetly in regions where its presence is ostensibly unwelcome.
Revealed through an internal document delineating the methodology, Binance adeptly assisted Chinese users in circumventing restrictions by routing them through diverse websites featuring Chinese domain names. These users were then seamlessly directed to the international exchange platform. Remarkably, despite China’s 2017 blockade of the exchange’s website, this document continued to circulate within the organization even beyond the 2021 prohibition.
Although CCN sought Binance’s input, no response was forthcoming at the time of publication.
The firm’s representative did, however, affirm that “the Binance.com website is blocked in China and is not accessible to China-based users,” yet refrained from divulging further details.
In terms of cryptocurrency transactions processed globally, Binance outpaces most of its competitors by a substantial margin. Therefore, Binance’s ability to sustain its presence within China becomes pivotal in skillfully navigating a regulatory crackdown that its leadership apprehensively perceives as a potential threat to its very existence.
Binance and China
Binance’s intricate relationship with China has undergone several phases. Back in 2017, Changpeng Zhao, originally from China but raised in Canada, founded the company in Shanghai. However, this venture was met with challenges as the government initiated a series of regulatory crackdowns on cryptocurrency exchanges. The authorities’ concerns centered around the potential illicit movement of funds out of the country. Responding swiftly, Zhao asserted that Binance had shifted its operations to Japan.
Yet, it’s important to note that Binance retained a substantial workforce in China. Executives at its American division voiced apprehensions regarding the implications of this arrangement, including the possible exposure of customer data in the United States to Chinese developers.
Zhao has consistently emphasized that leveraging his Chinese heritage, along with that of his colleagues, to imply a strong affiliation with China is an oversimplification.
In a blog post from the preceding year, Zhao highlighted, “While contending with the unfounded characterization of being a criminal enterprise in China, much like other offshore exchanges, Binance’s most significant contemporary challenge stems from this. Simultaneously, in the Western sphere, efforts persist to portray us as merely a ‘Chinese company.'”
Fast forward to 2021, China escalated its regulations on the cryptocurrency sector, going so far as to declare all transactions involving cryptocurrencies illegal. The rationale behind this move was ostensibly to uphold social stability and national security.
Earlier, Binance announced its decision to conduct a thorough inventory of platform users and transition accounts belonging to Chinese clients into a “withdrawal only” mode, effectively curbing their trading activities.
By October 2021, the company made a strong assertion, affirming, “Binance has consistently upheld its commitment to compliance and dutifully adhered to the pertinent mandates set forth by local regulatory bodies.”
Enforcing a Comprehensive Ban with a Delicate Approach
Chinese authorities have adeptly executed a comprehensive ban on cryptocurrencies.
Kim Grauer, the esteemed director of research at Chainalysis, a leading cryptocurrency research firm, affirms the enduring strength of the Chinese cryptocurrency market. Robust transaction volumes continue to characterize both centralized and decentralized services. Remarkably, despite a brief dip in the wake of the 2021 prohibition, China remains the fourth-largest global market for cryptocurrency trading.
In response to the situation, Chinese traders seeking alternatives to Binance are being guided towards acquiring Dominican digital citizenship to trade on the competing exchange Huobi.
Initially, Zhao championed a program offering residency cards for sale in Palau to foreign nationals, a venture ostensibly connected to aiding Chinese users. However, Binance severed ties with this initiative subsequently, according to official statements from the company.
A tactic frequently employed not only in China but also in other restricted jurisdictions is the use of Virtual Private Networks (VPNs) to mask one’s location, facilitating access to prohibited exchanges.
Insights from a former employee reveal that Binance’s China-based trading saw a decline from 24% of total trading volume mid-year to 17% by the close of 2021. Nevertheless, the company’s presence rebounded vigorously in 2022, maintaining its high activity level. Binance’s internal “Mission Control” portal reported a substantial cryptocurrency exchange exceeding $90 billion amongst Chinese customers in May 2023, primarily driven by cryptocurrency-related futures contracts. Worth noting is the U.S.’s prohibition on cryptocurrency futures trading.
The latest data from “Mission Control” indicates that out of the 5.6 million Chinese users registered on the Binance platform, an impressive 911,650 remain active, underscoring the enduring vibrancy of the Chinese cryptocurrency trading landscape.