Crypto is NOT banned in China
China wouldn’t be China if there weren’t ways around strict rules. Ownership of crypto is still legal and legally protected. Most people in the West greatly underestimate the flexibility of the Chinese system. Chinese entrepreneurs are masters of the gray area.
Wait a minute – hasn’t China banned everything related to crypto by now? Well, yes and no. The government has banned all services related to cryptocurrencies, such as trading platforms, promotion or sales, and even mining of cryptocurrencies.
After China has long been the largest and most vibrant crypto market in the world, today an entire industry has seemingly disappeared. However, apparently is the key word here. Because China wouldn’t be China if there weren’t ways to circumvent strict regulations.
Despite half a dozen bans on crypto-related activities, the government has never banned one thing, actually owning crypto.
Yes, you read that right, owning Bitcoin (or any other cryptocurrency) is still legal and legally protected in China.
And if you can legally own something, then you also have the right to sell it to someone else. After all, it is legal property, and anyone can decide for themselves what to do with it. You will only get into legal trouble if you try to set up a professional cryptocurrency trading business.
Holding on to property rights may surprise some. Finally, the Chinese government views private cryptocurrencies largely as a vehicle for money laundering, tax evasion and illegal fundraising. However, this is not surprising to those who know China well. The system has ambiguity.
China and cryptocurrencies: A history of misunderstandings
China is the only country in the world that has managed to remain officially communist while running a hyper-capitalist economy. Likewise, the country has managed to be the largest economy with the strictest crypto regulation and at the same time one of the most active crypto markets.
It may seem contradictory, but Contradictions are exactly what the Chinese economy lives on. They make a naturally rigid, bureaucratic system incredibly flexible.
The reasons why cryptocurrencies are so popular in China are obvious: an oppressive government, strict capital controls and massive government surveillance. All of these are driving the demand for immutable, privacy-focused and freely transferable assets.
A Chinese friend and former Bitcoin Miner told me a long time ago:
“Chinese are buying crypto because there is no other way to protect our assets. Everyone also knows that the stock market in China is manipulated and inefficient, and property prices are already extremely high. How else can we invest and hope to create wealth for ourselves? “
But creating wealth for its citizens is certainly not the main reason why China has long tolerated cryptocurrencies. The government’s main objective has always been to remain in control while being open to new, promising technologies. As Kai von Carnap, an analyst at Europe’s largest think tank in China, explains: “The government is happy to receive all the ‘free’ expertise in cryptocurrency and blockchain-related areas, while keeping its huge number of engineers busy. In fact, someone programming on Ethereum today might as well switch to government initiatives like China’s BSN (Blockchain Service Network) or write smart contracts for e-CNY.
Systematic Ambivalence: 50 Shades of Gray Area
This means that cryptocurrencies in China never really had a chance to be legalized. But it also means there is no reason for the government to ban them completely. Rather, the authorities have chosen a repeated crackdown approach to keep the mass of the population away from such undesirable activities. At the same time, they allow a few to play along as long as they do not become involved in fraudulent activities or money laundering.
This approach to new technologies and the economy in general has a system and is surprisingly uni-ideological. This is what most people who look at China from the outside do not understand.
Since we come from constitutional societies where the constitution clearly defines what it allows and what it does not, most people in the West greatly underestimate the flexibility of the Chinese system. You see a few bureaucrats in Beijing who adopt strict rules and take it at face value. However, the implementation itself is often a completely different matter.
The law in China is not there for the citizens to always follow to the letter, they see it as an instrument in the hands of the authorities. It is often only used when something gets out of hand. In practice, local authorities often turn a blind eye. From the outside, this looks quite arbitrary, but there are significant opportunities for entrepreneurs who are familiar with the system. And one thing is certain: Chinese entrepreneurs are masters of the gray area.
They have long been accustomed to operating on the border of legality, after all, all private business in China was illegal until the beginning of the reform period.
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