Although the Chinese government has hailed their crypto ban as successful, it appears that traders have found multiple ways to circumvent the ban despite tightening scrutiny on crypto by state regulators. Exchanges are also finding ways to avoid being shut down by the government, enabling trading for Chinese citizens.

Chinese state-run newspaper, the Shanghai Securities Times, reported in late August that authorities are moving swiftly to block access to exchanges that are operating illegally, and blocked access to an additional 124 offshore exchanges providing services to Chinese citizens.

The offshore exchanges exploited weaknesses in the government’s ban by frequently changing their domain names in order to avoid detection. They also moved their servers to countries outside of the Chinese mainland, making it incredibly difficult for authorities for monitor and block the illicit exchanges.

Chinese Government Claims that Cryptocurrency Ban has Been Successful

In July, the Central Bank of China released a report that claimed that the country’s cryptocurrency ban had been incredibly successful, reducing Yuan trading activity to under 1%, while the currency once accounted for 90% of global trading volume.

Following the ban, the government moved to shut down as many high-profile exchanges, ICOs and crypto projects as possible, rapidly reducing trading volume and scaring citizens away from the markets.

Although state regulators are frequently shutting down illegal ICOs and blocking access to offshore exchanges, it does not appear that the government will ever be able to fully eradicate access to cryptocurrency exchanges.

Terence Tsang, the COO of TideBit, a centralized crypto exchange based in Hong Kong and Taiwan, said that:

“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.”

Following the report that claimed regulators are stepping up their actions against illegally operating exchanging, Chinese trading volume dropped 33%, signaling that traders are likely moving their cryptos to cold storage wallets due to the risk involved with holding their digital currencies on an exchange.

In addition to utilizing illegally operating exchanges, Chinese traders are also using peer-to-peer trading to circumvent the ban, exchanging cryptocurrency between wallets directly, without using a middle-man, like an exchange. These types of transactions are done by converting fiat currency to Tether and sending that as payment in exchange for virtual currencies, with all the online actions being done through a Virtual Private Networks (VPNs).

The government has not yet taken actions to block VPNs, although a ban on the use of these tools would make peer-to-peer cryptocurrency transactions more difficult to conduct.

Some Chinese companies, including WeChat, Tencent, and Ant Financial, have all taken actions to block cryptocurrency trading on their social platforms in an effort to be more compliant with the government’s regulators.

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