Underground Crypto Trading in China: Risks and Reality

China’s crypto ban didn’t kill trading - it just drove it underground

Even though China outlawed cryptocurrency exchanges in 2021 and blocked banks from touching crypto, people are still trading it. A lot. Between July 2022 and June 2023, Chinese traders moved $86.4 billion in cryptocurrency - more than all of Hong Kong’s legal market during the same period. That’s not a glitch. It’s a system. And it’s not going away.

What’s actually illegal? And what’s not?

The Chinese government doesn’t ban you from owning Bitcoin or Ethereum. You can hold it in your wallet. But you can’t buy it on Binance, Coinbase, or any local exchange. You can’t mine it. You can’t run a crypto business. Banks are forbidden from processing crypto payments. If you’re a company or exchange, you’re out. But if you’re an individual using a VPN to buy Bitcoin from a peer, you’re in a gray zone - not explicitly illegal, but still risky.

Here’s the twist: in 2025, Chinese courts started calling cryptocurrencies “legal property.” That doesn’t mean trading is legal. It means if someone steals your Bitcoin, you might have legal standing to sue. But if you’re caught trading it? That’s a different story. The rules are messy. One day, you’re safe. The next, your account gets frozen.

How are people even doing it?

They’ve built a shadow network. No centralized exchanges. No public apps. Instead, traders use peer-to-peer (P2P) platforms, over-the-counter (OTC) brokers, and Hong Kong bank accounts to move money. Many use multiple VPNs to bypass the Great Firewall. Some even route trades through friends or family in Hong Kong, where crypto is legal.

Stablecoins like USDT are the secret weapon. They’re pegged to the U.S. dollar, so they don’t swing wildly like Bitcoin. Traders buy USDT on P2P platforms using yuan, then use it to trade for Bitcoin or Ethereum on international exchanges. When they want cash back, they sell USDT to another trader in China for yuan - often in person, via WeChat, or through trusted brokers. It’s slow. It’s manual. But it works.

Large trades - between $10,000 and $1 million - make up nearly 7% of all transactions in China. That’s double the global average. This isn’t college kids buying Dogecoin. This is investors with savings, businesses looking to hedge, and wealthy families trying to protect wealth.

Why risk it? The real reason

China’s stock market crashed. The CSI 300 index dropped 35% over three years. Corporate earnings have missed forecasts for ten straight quarters. Savings accounts pay less than 1.5% interest. Real estate? Prices in major cities are stagnant or falling. People are desperate for returns.

When your government controls your money and your investments, crypto becomes a form of financial escape. It’s not about speculation - it’s about survival. Even with the risks, crypto offers something traditional markets don’t: access to global assets, liquidity, and a way to move value outside China’s tightly controlled system.

The hidden dangers

Trading crypto in China isn’t just risky - it’s dangerous.

• Asset seizure: Authorities can freeze your bank account or confiscate your crypto if they suspect trading activity.
• Counterparty fraud: OTC brokers and P2P traders can disappear with your money. There’s no PayPal dispute team, no bank insurance.
• VPN blackouts: The government blocks VPNs constantly. One day your connection works, the next it doesn’t - and you’re locked out of your wallet.
• Criminal charges: While personal ownership is tolerated, repeated trading or large volumes can lead to investigations - even jail time if deemed “illegal business activity.”
• Psychological toll: Traders report constant anxiety. They check news hourly. They avoid discussing crypto with friends. Some say it feels like living with a secret that could ruin everything.

There’s no safety net. No FDIC. No consumer protection. If you get scammed, you’re on your own.

The Hong Kong loophole

Hong Kong is the lifeline. It’s not part of mainland China’s financial system. Crypto is legal there. Many Chinese traders set up shell companies or open personal bank accounts in Hong Kong. They use these to move money legally - then transfer crypto back to mainland wallets via trusted intermediaries.

Some even hire professional OTC desks in Hong Kong that handle everything: KYC, transfers, compliance. These services cost 1-3% per trade, but they’re reliable. For high-net-worth individuals, it’s worth it. For retail traders? It’s out of reach.

What’s changing in 2025?

There are signs the government might be softening - but not giving in.

Shanghai regulators are now discussing rules for stablecoins. Not Bitcoin. Not Ethereum. Just digital dollars tied to the yuan or USD. That’s a clue. China doesn’t want to ban crypto - it wants to replace it with its own digital currency: the digital yuan (e-CNY).

The digital yuan is centralized. The government tracks every transaction. It can freeze spending. It can limit where you spend it. It’s the opposite of Bitcoin. And that’s exactly the point.

China’s goal isn’t to let people trade crypto. It’s to make crypto irrelevant. If you can pay for everything with a government-controlled digital dollar - why risk jail for Bitcoin?

Will this last?

Probably. As long as China’s economy stays sluggish and investment options stay weak, people will find ways to trade crypto. The underground market isn’t growing because of hype - it’s growing because there’s no alternative.

But enforcement is tightening. In late 2024, authorities started cracking down on OTC brokers who used WeChat groups to match buyers and sellers. Several were arrested. More are under investigation. The government is using AI to track unusual bank transfers - especially those that match crypto trading patterns.

So while the market survives, it’s becoming harder. Slower. More dangerous. The days of easy P2P trades are fading. Only the most prepared - those with Hong Kong accounts, multiple VPNs, and trusted networks - are still in the game.

What’s next?

Don’t expect China to legalize crypto anytime soon. But you might see it quietly allow stablecoin trading under strict control - like a sandbox for digital money that still serves the state’s agenda.

For now, the underground market is a testament to how far people will go for financial freedom. It’s not a rebellion. It’s a quiet, calculated act of survival. And it’s working - for now.