Crypto Is Illegal in China. Binance Does $90 Billion of Business There Anyway.
Retaining its Chinese footprint will be crucial for Binance as it faces a global regulatory crackdown
Binance, the world’s largest crypto exchange, was supposed to leave China behind when the country made cryptocurrency trading illegal in 2021.
Almost two years later, users traded $90 billion of cryptocurrency-related assets in China in a single month, according to internal figures viewed by The Wall Street Journal and current and former employees. The transactions made China Binance’s biggest market by far, accounting for 20% of volume worldwide, excluding trades made by a subset of very large traders.
China’s importance for Binance is openly discussed internally, according to the current and former employees. And despite the ban, the exchange’s investigations team works closely with Chinese law enforcement to detect potential criminal activity among the more than 900,000 active users in the country, according to some of the current and former employees.
Binance is facing a regulatory onslaught tied in part to the secretive way it operates around the globe. The U.S. Securities and Exchange Commission in June sued Binance and its founder, Changpeng Zhao, for allegedly operating illegally and misusing customer funds. The Justice Department has a continuing investigation into Binance. Its market share among U.S. users has all but evaporated and the company recently cut over 1,000 of its 8,000 jobs globally.
Binance’s China footprint, previously undisclosed, offers a glimpse of how the crypto giant has managed to quietly operate on the fringes in places where it is, officially at least, unwelcome.
Binance has helped China users circumvent restrictions by directing them to visit different websites with Chinese domain names before rerouting them to the global exchange, according to an internal document laying out the procedure and viewed by the Journal. The document circulated inside the company before the 2021 ban but after China blocked the exchange’s website in 2017.
China’s central bank, which imposed the crypto ban, didn’t respond to a request for comment.
“The Binance.com website is blocked in China and is not accessible to China-based users,” a company spokesman said without commenting further.
Binance processes more cryptocurrency transactions around the world than most of its competitors combined. Holding on to its footprint in China will be crucial for Binance as it navigates a regulatory crackdown that executives internally worry threatens its future.
Binance has had a complicated relationship with China. Zhao, Chinese born but raised in Canada, founded the firm in Shanghai in 2017. Months later, the government issued the first of several rolling regulatory attacks on crypto exchanges. Officials feared the exchanges would be used to illegally move money out of the country. Zhao later said he moved Binance’s operations to Japan.
Binance kept dozens of staff in China, the Journal previously reported. Executives at its U.S. arm worried about the implications of the arrangement, including that developers in China had control over U.S. user data.
Zhao has said in the past that his and other employees’ Chinese heritage has been seized upon to paint a close relationship with the country.
“The greatest challenge that Binance faces today is that we (and every other offshore exchange) have been designated a criminal entity in China. At the same time, our opposition in the West bends over backward to paint us as a ‘Chinese company,’ ” he wrote in a blog last year.
China broadened its clampdown on the industry in 2021, and declared all cryptocurrency-related transactions illegal. The motive, it said, was to maintain national security and social stability.
At the time, Binance said it would conduct an inventory of platform users and would switch accounts from China-based customers to “withdrawal only” mode, meaning they would be forbidden from trading.
“Binance has always taken its compliance obligations seriously and has always strictly complied with the relevant requirements of local regulatory agencies,” it said in an October 2021 statement.
Chinese officials appear to have applied a soft touch on implementation of the all-encompassing ban.
“China’s cryptocurrency market remains strong, with healthy transaction volumes across both centralized and [decentralized] services,” said Kim Grauer, director of research at Chainalysis, a crypto research company. Despite an initial drop after the 2021 ban, the country is the fourth-largest market for crypto trading, according to Chainalysis.
Huobi, a rival exchange to Binance, has prompted Chinese users to apply for Dominican digital citizenship to allow them to trade on the platform.
Zhao was an initial promoter of a program in Palau that sells residency cards to foreigners, though Binance said it eventually dropped further association with the project. Binance’s interest in the Palau plan was in part motivated by wanting to help Chinese users, according to a person familiar with the project.
Crypto traders in China and elsewhere also use VPNs—an application that masks their location—to sign up on exchanges that are banned in their countries.
Binance’s China business dropped after the ban to 17% of its overall trading volume at the end of 2021 from 24% in the middle of the year, according to a former employee who viewed the data.
But it picked up again in 2022 and has stayed at high levels. China-based customers traded over $90 billion in cryptocurrencies in May 2023, according to an internal platform at Binance named “Mission Control.” Most of the trading was in futures contracts tied to cryptocurrencies. Futures trading for crypto is banned in the U.S.
There were 5.6 million China-based users registered at the exchange, of which 911,650 were active, according to Mission Control.
The second-biggest market for the exchange is South Korea, with a 13% share, followed by Turkey with almost 10%. All other countries comprise less than 5% of the volume traded at Binance.
About 100,000 Chinese users at Binance as of January were classified as “politically exposed persons,” according to internal company documents and a former employee. PEP designations are employed by banks and regulators to mark government officials, their relatives or close associates who require greater scrutiny due to their greater risk of involvement in bribery, corruption or money laundering.
Binance has in the past taken a relaxed attitude toward verifying the identity of its users in China, according to the internal documents and the former employee. Less than half of China-based registered users had gone through know-your-customer checks in the months after the ban at the end of 2021.