China Is Poised for Another Crypto Trading Crackdown as Speculative Fever Returns

Financial regulators in China appear set to crack down on cryptocurrency trading again after President Xi Jinping's praise for blockchain technology revived speculation in the sector.

Regulators in each district of Shanghai must search and inspect local crypto exchange-related services before Nov. 22 and report to the central bank for further actions, according to an official notice signed by the Shanghai Internet Finance Rectification Agency and the Shanghai Bureau of the People's Bank of China.

The notice emerged online on Friday. Chinese business publication Caixin confirmed its authenticity in a report published later that evening. The effort is led by the Shanghai government's finance bureau, Caixin said.

The move underscores China's complicated relationship with emerging decentralized technologies. In his speech earlier this month, President Xi called on his countrymen to "accelerate the development of blockchain technology," and China has long been a favored location for bitcoin miners. On the other hand, the government banned crypto-to-fiat trading and initial coin offerings (ICOs) two years ago, near the height of the bubble. Crypto-to-crypto trading remained accessible.

According to the notice, regulators in each district of Shanghai are required to look for any entity that is organizing virtual currency trading activities inside China, or ICOs using a blockchain.

Promotional and brokerage services inside China for ICO projects that are registered outside of the country also fall under the inspection scope of the local financial regulators.

Caixin said speculation on crypto has reemerged in China following President Xi's speech earlier this month.

Social media ban

Meanwhile, China's social media platform Weibo has banned users from publishing any posts that contain "blockchain" and "crypto trading" at the same time.

Such content "contains information that violates related laws and regulation or Weibo's community terms," according to the message that pops up when a user tries to mention both terms. It is not clear when the restriction was put into place, and as of Friday, it was still possible to publish the phrase "crypto trading" or "blockchain," just not together.

The Shanghai government's notice also comes at a time when some exchanges are expanding their local presence to tap into the Chinese market.

Binance, which has a dedicated team in Shanghai, recently rolled out peer-to-peer trading on its platform that enables users to buy or sell cryptocurrencies using Chinese yuan through bank wires, AliPay or WeChat. However, shortly after Binance's feature release, AliPay clarified that no official relationship between it and the exchange exists and all over-the-counter transactions are “closely monitored” for bitcoin or other virtual currency activity currently barred by AliPay's policies.

On Nov. 14, Binance's official Weibo account was abruptly suspended by the social media platform for "being complained [about] for violating laws and regulations."

The exchange said that the suspension was due to a "malicious report" filed by some users to the social media platform and it's appealing to Weibo to reopen the account. Similarly, the official Weibo account of blockchain project Tron was suspended on Nov. 15.

A few weeks ago, a little-known Beijing-based cryptocurrency exchange called Biss, which claims to offer a channel for Chinese investors to buy U.S. stocks using cryptocurrency, was reportedly under investigation by local police. The exchange said in an announcement on Nov. 4 that some of BISS' operational staff are "actively assisting the investigation by authorities."

Chinese flag image via Shutterstock