Underground Crypto Trading in China: Risks and Reality

By Robert Stukes On 13 Nov, 2025 Comments (15)

China Crypto Trading Risk Calculator

Underground Trading Risk Assessment

Based on article data: 70% of transactions between $10k-$1M, $86.4B moved in 2022-2023, 15 hours/week managing access.

Trading Volume (USD)

Investment Duration (Months)

China banned crypto trading - but people are still trading it

China officially shut down cryptocurrency exchanges in 2021. Banks can’t touch Bitcoin. Mining farms were torn down. Binance and Coinbase can’t operate inside the country. Yet, between July 2022 and June 2023, Chinese traders moved $86.4 billion in crypto - more than all of Hong Kong during the same period. That’s not a glitch. It’s a system.

What’s actually illegal - and what’s not

The Chinese government doesn’t ban owning Bitcoin or Ethereum. You can hold it in a wallet. But if you buy it on an exchange, sell it for yuan, or run a trading platform, you’re breaking the law. That’s the gray zone. Courts have called crypto "legal property" in 2025, which sounds like a win - until you realize it doesn’t mean you can trade it. You can own it, but you can’t move it legally. So people move it anyway.

How traders bypass the ban

There’s no single method. It’s a patchwork of workarounds. Most use VPNs - not just one, but multiple layers. Some connect through Hong Kong servers, then route trades through overseas exchanges that accept Chinese yuan. Others use over-the-counter (OTC) brokers who match buyers and sellers directly. These brokers aren’t on apps. They’re on WeChat groups, Telegram channels, or private networks. You find them through word of mouth. Trust matters more than security.

Stablecoins like USDT are the backbone. They’re the bridge between yuan and Bitcoin. You send yuan to a broker. They send you USDT. You trade USDT for Bitcoin on Binance via a Hong Kong SIM card. Later, you cash out through another broker. No direct bank link. No paper trail. Just layers of intermediaries.

Hidden WeChat chat transferring USDT and yuan, with pixelated proxy networks connecting traders in a Chinese city at night.

Who’s doing this - and why

It’s not college kids gambling on memes. It’s investors with real money. Over 70% of crypto transactions in China are between $10,000 and $1 million - nearly double the global average. These are people who lost money in the stock market. The CSI 300 index dropped 35% over three years. Corporate earnings have missed forecasts for ten straight quarters. The government poured 2 trillion yuan into stocks to stabilize things - it didn’t work. People looked elsewhere.

For many, crypto isn’t speculative. It’s a hedge. Against inflation. Against capital controls. Against a financial system that offers little return and no transparency. If your savings are stuck in low-yield bank accounts and property prices are falling, crypto becomes the only real alternative.

The hidden costs

There’s no FDIC insurance here. No customer support. No legal recourse if a broker vanishes with your cash. In 2024, a major OTC group in Guangzhou collapsed after the owner fled to Thailand. Hundreds lost millions. No one was prosecuted. The police said it was a "civil dispute."

VPNs get blocked. Accounts get frozen. Banks flag transactions linked to crypto even if you didn’t touch it - just because you used a known proxy. Some traders have had their homes raided after being flagged by surveillance systems that monitor unusual digital activity. One trader in Chengdu told a reporter he spent 15 hours a week just managing his access: switching IPs, verifying brokers, updating burner phones.

And the risk isn’t just financial. In 2023, a Shanghai trader was fined 500,000 yuan and banned from using banking services for five years after being caught using a P2P platform. He wasn’t mining. He wasn’t running an exchange. He just bought Bitcoin for personal use. The government called it "illegal fund transfer."

Why the government hasn’t cracked down harder

China could shut this down completely - if it wanted to. It controls the internet. It monitors bank transfers. It tracks phone numbers. But it doesn’t. Why?

Because it’s too big. Too entrenched. Too many powerful people are involved - executives, local officials, even some state-owned enterprises quietly use crypto to move money offshore. Shutting it down would mean exposing corruption, triggering capital flight, and alienating millions of middle-class investors.

Instead, they’re watching. Waiting. Testing. Shanghai regulators recently started talking about regulating stablecoins - not Bitcoin, not Ethereum, but USDT and USDC. That’s a signal. They might be preparing to bring crypto under control, not eliminate it. A state-backed stablecoin, maybe. Tied to the digital yuan. Controlled. Monitored. But still digital.

The future: more control, not less

The digital yuan (e-CNY) is China’s answer to crypto. It’s not decentralized. It’s not anonymous. It’s a tool for the state to track every transaction, enforce spending limits, and cut out the middleman - including crypto traders. The government wants digital money that it can turn off if needed. Crypto, by contrast, can’t be turned off.

That’s why the underground market won’t disappear. It will evolve. As the digital yuan rolls out, more people will use crypto as a way to bypass its restrictions. The more the state controls, the more people will seek ways around it. The $86.4 billion isn’t a fluke. It’s a symptom.

What this means for regular people

If you’re a Chinese citizen thinking about crypto: you can hold it. But trading it is risky. Your money can vanish. Your account can be frozen. You could be fined. There’s no safety net.

If you’re outside China and wondering whether this market will grow: yes. It already is. And as long as China’s economy stays sluggish and its financial system stays closed, people will find ways to get out. The technology is there. The demand is there. The only thing missing is legal cover - and that’s not coming anytime soon.

What’s next for China’s crypto scene

Look for three things:

More stablecoin regulation - likely tied to the digital yuan
Increased surveillance of P2P platforms and OTC brokers
More arrests of high-profile traders - used as warnings, not to stop the market

Don’t expect a full legalization. China doesn’t want crypto. It wants control. And right now, the underground market is the only thing keeping the pressure off the official system.