When China outlawed cryptocurrency trading in 2021, Binance, the largest cryptocurrency exchange in the world, was planned to leave.
According to internal data seen by The Wall Street Journal, current employees, and former employees over two years later, users transacted $90 billion in cryptocurrency-related assets in China in a single month. With the exception of deals done by a small subset of very large dealers, the transactions made China Binance’s biggest market by a significant margin, accounting for 20% of activity globally.
Both current and former employees claim that internal discussions about China’s significance for Binance are frequent. According to some current and former employees, the exchange’s investigations division nonetheless closely collaborates with Chinese law enforcement to identify potential illicit activities among the more than 900,000 active users in the nation.
Because of its worldwide secrecy, Binance is currently under attack from regulators. In June, the U.S. Securities and Exchange Commission filed a lawsuit against Binance and Changpeng Zhao, the company’s founder, for allegedly engaging in illegal activity and squandering user cash. The Justice Department is looking into Binance right now. The company recently lost almost 1,000 of its 8,000 positions worldwide, and its market share among American users has all but vanished.
The previously unidentified footprint of Binance in China provides an insight into how the crypto-giant has operated covertly in areas where it is, at least officially, not wanted.
An internal memo describing the process that was seen by the Journal claims that Binance has assisted China users in getting around limitations by referring them to several websites with Chinese domain names before redirecting them to the international exchange. Prior to the prohibition in 2021 but following China’s website blockade of the exchange in 2017, the document was shared within the corporation.
Requests for comment from the Chinese central bank, which put the ban on cryptocurrencies, went unanswered.
Unable to explain further, a business official claimed that the Binance.com website is blocked in China and inaccessible to users who are based there.
Compared to the majority of its rivals combined, Binance conducts more cryptocurrency transactions globally. As it navigates a regulatory crackdown, which executives privately fear could jeopardize its survival, Binance will need to focus on maintaining its presence in China.
China and Binance have a troubled history together. Zhao, who was born in China but raised in Canada, established the business in Shanghai in 2017. A few months later, the government launched the first of several continuous regulatory assaults on cryptocurrency exchanges. The exchanges were believed by officials to be used to smuggle money out of the nation. Later, Zhao claimed he had relocated Binance’s operations to Japan.
As previously reported by the Journal, Binance maintained a sizable team in China. The fact that developers in China had access to user data from American users scared executives at its U.S. branch about the consequences of the agreement.
Zhao has previously claimed that his and other employees’ Chinese ancestry has been used to portray a deep connection to the nation.
Zhao has previously claimed that the Chinese ethnicity of himself and other staff has been used to portray a deep connection to the nation.
They (along with every other offshore exchange) have been classified as a criminal business in China, which is the biggest difficulty Binance is now facing. At the same time, their adversaries in the West go to great lengths to cast them in the negative light of being a Chinese corporation, he wrote in a blog post last year.
In 2021, China tightened its sanctions against the sector and ruled that any transactions involving cryptocurrencies were unlawful. The goal, according to the statement, was to preserve social and national security.
At the moment, Binance announced it will build a list of platform users and put accounts of users from China in “withdrawal only” mode, preventing them from trading.
According to a statement released by Binance in October 2021, the company has always taken its compliance commitments seriously and has adhered strictly to all pertinent regulations set forth by regional regulatory bodies.
Chinese officials seem to have taken a moderate approach when enforcing the whole ban.
According to Kim Grauer, head of research at Chainalysis, a cryptocurrency research firm, China’s cryptocurrency sector is still strong, with healthy transaction volumes across both centralized and [decentralized] businesses. The nation is the fourth-largest market for cryptocurrency trading, according to Chainalysis, despite a brief decline following the 2021 ban.
Chinese consumers are being urged to apply for Dominican digital citizenship by Huobi, a competitor exchange to Binance, in order to trade on the platform.
Zhao was an early supporter of a Palau programme that sells residency cards to foreigners, while Binance said that it eventually severed all ties to the enterprise. According to a person familiar with the proposal, Binance’s interest in the Palau idea was partially driven by a desire to aid Chinese users.
As a way to sign up for exchanges that are prohibited in their nations, cryptocurrency traders in China and other countries utilize VPNs, a programme that conceals their location.
According to a former employee who looked at the statistics, after the restriction, Binance’s China business shrank to 17% of its entire trading volume by the end of 2021 from 24% in the middle of the year.
Nevertheless, it resumed in 2022 and has remained at high levels ever since. According to an internal Binance platform called “Mission Control,” consumers in China transacted more than $90 billion in cryptocurrency in May 2023. Futures contracts connected to cryptocurrency were the main trading type. Futures trading in cryptocurrency is prohibited in the United States.
According to Mission Control, there were 5.6 million China-based users registered at the exchange, with 911,650 of them active.
South Korea is the second-largest exchange market, accounting for 13% of the total, followed by Turkey, which accounts for over 10%. All other nations account for less than 5% of Binance’s trading volume.
According to internal company documents and a former employee, about 100,000 Chinese users at Binance were classed as politically exposed as of January. Banks and authorities use PEP designations to identify government officials, their family, or close associates who require additional scrutiny due to a higher risk of involvement in bribery, corruption, or money laundering.
According to internal papers and the former employee, Binance has previously taken a casual approach to authenticating the identities of its Chinese users. In the months following the prohibition, less than half of registered users in China had gone through know-your-customer checks.
