This weekly roundup of news from mainland China, Taiwan, and Hong Kong attempts to curate the industry’s top news, including influential projects, changes in the regulatory landscape, and corporate blockchain integrations.

Well it finally happened. The regulation-driven crypto apocalypse in China. They started cracking down on miners earlier this summer before finally tightening the screws on the exchanges. This week the final nail in the coffin came with even more rules from the PBoC, which resulted in many platforms announcing that they could no longer accept Chinese users.

Locked again

The new rules Narrated by the People’s Bank of China, made things incredibly clear to businesses from a legal perspective. One of the main points was that cryptocurrency-related business activities are illegal, a ruling that casts doubt on the long list of projects, exchanges and financial services providers in the country.

Many projects responded immediately by eliminating WeChat communities and even internal messaging groups on domestic networks, preferring to work through VPNs and more privacy-centric chat apps. The leading Huobi exchange, which ranks third in the global rankings for volume, announced they would permanently close Chinese user accounts at the end of the year.

Chinese users on Huobi will have to make a decision before accounts close on December 31st.

If that’s true, it would be a massive blow to the stock market, which has long served the Chinese community with a high standard of service that includes high liquidity, a wide range of assets, and few significant security flaws. Seasoned Chinese investors might still be skeptical that Huobi would make such a drastic change, as announcements and policies can change very quickly in the Chinese world of crackdown and political stance.

Trouble for foreign players

Perhaps the most alarming point in the PBoC’s announcement was that foreign cryptocurrency exchanges providing services to Chinese residents are also being viewed as illegal financial activities. In addition, it has been found that participating in cryptocurrency investment transactions carries legal risks. This sparked a certain fear among crypto company employees who suddenly feared they would be the next target of law enforcement raids.

Binance quickly pointed out that the Binance.com domain in China has been blocked since 2017 and has been excluded from the regulatory discussion. It also announced that it would no longer accept new registrations from Chinese users, but said nothing about existing accounts. BitMart, another exchange linked to China, also announced it would close accounts of users in mainland China on Nov. 30. Biki, an even smaller exchange, announced that it would completely cease trading.

Many people ask, China banned Bitcoin 19 times, what’s the difference this time? ? Good, this lawyer explained the 5 differences in detail. Google Translate is required to read. https://t.co/WEMq99QCU1

– Wu Blockchain (@WuBlockchain) September 30, 2021

With smaller exchanges, the operational risks are quite high, especially since many have diversified business models that include investing, mining, or other financial services. Smaller CeFi exchanges in this area could also feel increasingly displaced by the rapid growth of the top CeFi platforms and the widespread introduction of decentralized exchanges. Closing the doors on the stock exchanges may not mean a complete exit from the industry, but simply the abandonment of a risky and underperforming business area.

So what is left for Chinese traders?

Individual users are still in a gray area as the announcement did not strictly state that owning cryptocurrencies is illegal. This seems unlikely as the general trend is towards protecting citizens through targeted businesses, a move we’ve seen across a number of different industries this year, including education and entertainment.

Another unclear area is Chinese users who live overseas. In addition to the large population of Chinese citizens abroad, many can still fake their location using VPNs. Assuming these users are still able to circumvent IP bans, it could give tech-savvy owners a possible way to continue trading on CeFi platforms.

Exchanges with no business in China may see this as an opportunity as regulators have very little recourse to them. At this stage, it seems like China’s regulators could succeed in discouraging much of the smaller cryptocurrency retail activity. However, the big players are already abroad or are looking for ways to bypass these new barriers. If you’ve been in the room for a while, you’re more than familiar with the ups and downs of the regulations.

No answer to decentralization

The biggest benefactor in the short term could be DeFi protocols. The double blow from China’s crackdown and liquidity rewards on DYDX caused a massive surge in adoption for the StarkWare-based derivatives platform. According to data from Similarweb, China was the most important region for accessing the website with a market share of over 10%. Users with VPNs from China probably mattered even more. It is not yet clear whether this will be a long-term solution or whether the massive surge is more speculative to earn the DYDX token as a reward.

China and Hong Kong are trailblazers for visitors to the DYDX website. Source: Similarweb

On the party line

Alibaba e-commerce platform sees an opportunity to show its best behavior announced the platform could no longer be used for the sale of cryptocurrency mining machines. That stance isn’t surprising considering the company is already under scrutiny by financial regulators. The organization is being restructured after its P2P lending models sparked a high profile dispute between founder Jack Ma and financial regulators.

Relevant news