Underground Crypto Trading in China: Risks and Reality in 2025
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China officially banned cryptocurrency trading in 2021. Banks can’t touch it. Exchanges like Binance and Coinbase are blocked. Mining operations were shut down overnight. Yet, Chinese traders still moved $86.4 billion in crypto between July 2022 and June 2023. That’s more than Hong Kong, a place where crypto is legal. How is that possible?
The Legal Gray Zone
The Chinese government doesn’t let you trade crypto. But here’s the twist: owning it isn’t illegal. At least, not officially. You can hold Bitcoin or Ethereum in your wallet. Courts in China have even ruled that crypto is “legal property.” That sounds like a green light-until you try to sell it. Trading, exchanging, or facilitating any crypto transaction? That’s a violation. And enforcement is unpredictable. One day, you’re fine. The next, your account gets frozen, your funds seized, or you get summoned by regulators. In May 2025, rumors spread that personal crypto holdings were now restricted. But official sources haven’t confirmed it. What we do know is that Shanghai regulators are now talking about stablecoins-digital currencies pegged to the yuan or USD. That’s not an endorsement of Bitcoin. It’s a sign they’re thinking about how to control digital money, not eliminate it.How People Keep Trading
If you can’t use an exchange, you find another way. Most traders rely on peer-to-peer (P2P) platforms. These aren’t apps you download from the App Store. They’re hidden in Telegram groups, WeChat channels, and encrypted forums. You find a seller. You send them yuan through a bank transfer. They send you Bitcoin or USDT. No middleman. No oversight. Just trust. To access global exchanges, traders use VPNs-often multiple layers of them. Some use private proxy networks. Others route everything through Hong Kong, where crypto is legal. Many set up shell companies or bank accounts there. It’s not simple. It’s expensive. But for people who’ve lost money in China’s collapsing stock market, it’s worth it. The CSI 300 index, China’s main stock benchmark, dropped 35% over three years. Corporate earnings have missed forecasts for ten straight quarters. People aren’t investing in stocks. They’re not saving in banks-interest rates are near zero. Crypto is the only asset that still promises real returns. That’s why even middle-class families are getting involved.The Real Risks
Trading crypto in China isn’t risky because of price swings. It’s risky because of the law. First, your money can vanish without warning. A P2P seller might disappear after you send them 50,000 yuan. There’s no chargeback. No customer service. No recourse. If you’re caught trading, you could face fines or even criminal charges-especially if you’re seen as running a business. Second, your tech can fail. A VPN gets blocked. Your wallet gets hacked. A trusted broker turns out to be a scammer. Many traders use multiple wallets, split their holdings, and never keep more than they can afford to lose. Some even use family members in Hong Kong or Singapore to hold assets for them. Third, the government is watching. In 2024, Chinese authorities started tracking bank transfers linked to crypto P2P platforms. If you send 10,000 yuan to a known OTC broker, your account gets flagged. You might get a call from your bank. Or worse-a visit from local police.
Who’s Really Doing This?
It’s not just tech-savvy teenagers. The biggest volume comes from high-net-worth individuals. Transactions between $10,000 and $1 million make up nearly 7% of all trades in China-almost double the global average. These are people with connections, resources, and access to professional OTC desks in Hong Kong. They use private banking services, legal structures, and encrypted communication to stay under the radar. Retail traders? They’re the ones in WeChat groups, trading small amounts of USDT for cash. They’re more vulnerable. They don’t have lawyers. They don’t have offshore accounts. They’re the ones most likely to get burned.The Digital Yuan Factor
China isn’t trying to stop digital money. It’s trying to control it. The digital yuan (e-CNY) is being rolled out in cities across the country. It’s not decentralized. It’s not anonymous. Every transaction is tracked by the central bank. That’s the goal: replace cash, eliminate private alternatives, and keep all financial activity under state control. The underground crypto market is a direct challenge to that vision. If people can move money freely using Bitcoin or Ethereum, the digital yuan loses its power. That’s why the crackdown isn’t about morality or speculation-it’s about sovereignty.
What’s Next?
The underground market won’t disappear. Demand is too strong. Investment options are too weak. As long as Chinese stocks keep falling and banks offer near-zero interest, people will find a way. Some experts think China will eventually allow limited crypto access-through regulated stablecoins, perhaps. Others believe the government will double down on surveillance and punishment. The truth? It’s likely both. Expect tighter controls on P2P platforms. More crackdowns on VPN providers. But also, quiet exceptions for large investors and foreign-linked entities. For now, the system works because it’s messy. It’s slow. It’s dangerous. But it’s alive. And it’s bigger than most people realize.What You Need to Know
If you’re thinking about trading crypto in China:- Own crypto? It’s technically legal-but don’t trade it.
- Use P2P? You’re on your own. No protection. No insurance.
- Use a VPN? It’s common, but getting harder. Many services are now blocked.
- Send money to Hong Kong? It’s the most reliable path-but expensive and monitored.
- Trade large amounts? You’re in the crosshairs. Professional traders use lawyers, not apps.
Is it legal to own Bitcoin in China?
Yes, owning Bitcoin or other cryptocurrencies is not explicitly illegal in China. Courts have even recognized crypto as "legal property." But you cannot trade it, exchange it, or use it to pay for goods or services. Any commercial activity involving crypto-like running a P2P platform or acting as a broker-is strictly prohibited and can lead to legal penalties.
Can Chinese banks process crypto transactions?
No. Since 2021, the People’s Bank of China has banned all banks and payment processors from handling any cryptocurrency-related transactions. If your bank detects a transfer linked to a crypto platform, your account may be frozen, and you could be investigated. Many traders now use cash deposits, third-party intermediaries, or Hong Kong bank accounts to bypass this.
Why do people in China still trade crypto despite the ban?
Because traditional investments are failing. China’s stock market dropped 35% over three years, interest rates are near zero, and real estate is stagnant. Crypto offers a way to preserve wealth and seek higher returns. For many, the risk of trading is less than the risk of losing money in the official financial system.
What role does Hong Kong play in China’s crypto market?
Hong Kong is the critical bridge. It’s the only place near China where crypto exchanges are legal and regulated. Many mainland traders open bank accounts there, set up corporate entities, or use family members to access global exchanges. Over half of all crypto transactions from mainland China are routed through Hong Kong, even though the trading volume there is officially lower than China’s underground market.
Are stablecoins the future of crypto in China?
They might be. Stablecoins like USDT and USDC are already the most popular assets in China’s underground market because they’re easier to move and less volatile than Bitcoin. Shanghai regulators have started discussing stablecoin rules, suggesting the government may be exploring a controlled way to allow digital assets-without giving up control. This could mean state-approved stablecoins tied to the digital yuan, not decentralized ones.
What happens if you get caught trading crypto in China?
It depends. For small, personal trades, you might get a warning or have your bank account frozen. For larger or repeated activity, especially if you’re acting as a broker or running a platform, you could face fines, asset seizure, or criminal charges. Enforcement is inconsistent, but the risk is real. There’s no legal defense for violating the PBOC’s 2021 ban.
Is the underground crypto market growing or shrinking in China?
It’s growing in sophistication, not necessarily in volume. While the $86.4 billion annual volume hasn’t changed much since 2023, the methods are getting more advanced. Traders now use layered VPNs, encrypted messaging, and Hong Kong-based structures more deliberately. As long as domestic investment options remain weak, demand will persist-even if the government cracks down harder.
Malinda Black
October 31, 2025 AT 13:53It’s wild how people adapt when the system fails them. I’ve talked to folks in Shanghai who keep Bitcoin in cold wallets just to preserve value. They don’t trade often-just hold, wait, and quietly move small amounts when they need to. It’s not speculation, it’s survival. The government thinks they can control money, but human beings will always find a way to protect what’s theirs.
And honestly? The fact that courts recognize crypto as legal property says more than the ban ever could. The law is fractured. That’s not a bug, it’s a feature of a system trying to hold onto control while reality moves on.