Who in the world should worry about China’s new crypto ban?

China’s stepped-up cryptocurrency ban continues to send shockwaves beyond its borders, with many companies and people worried about the legal implications and how far Chinese investigations and law enforcement could reach. The recent notice jointly issued by 10 agencies, including China’s central bank as well as its judicial, public security and banking authorities, signals “a consensus has been reached by multiple government organs,” said Zhang Xiaoxiao, founder of ChainAudit — a consultancy to China’s public security departments on economic criminal activities — in an interview with Forkast.News. In addition to banning all crypto-related activities, including crypto mining, the notice specifies that both people and companies providing services to overseas exchanges could be subject to investigation by Chinese law enforcement.

Following the release of the notice, cryptocurrency-related businesses will undoubtedly face different forms of crackdowns, Zhang said. But as to how law enforcement agencies will carry out investigations and chase down activities China deems to be illegal, he added, “we have to wait for more judicial documents to be put out.” The notice, reflecting China’s toughest rules yet against crypto, is likely also a warning aimed at ordinary Chinese. “Part of it is going to be a scare tactic just to stop people investing in and using crypto,” Paul Haswell, a partner at the law firm Pinsent Masons in Hong Kong, told Forkast.News. China’s new crypto bans do not criminalize the ownership of crypto, legal experts said. But with the threats of penalties for people who sell crypto, the lives of Chinese nationals who hold crypto will undoubtedly get more complicated. David Lesperance, a Canadian immigration and tax advisor who works with many Chinese clients, predicts that the new clampdowns will effectively divide cryptocurrency holders into two camps. “One group will act to get their crypto assets and themselves an escape plan to avoid the complete control of the Chinese government,” Lesperance told Forkast.News. “Another group will not act and will be sentencing themselves to being under the thumb financially and physically of the central government authorities.”

Targeting overseas exchanges and mainland China users

Within overseas Chinese communities and crypto companies that employ Chinese nationals, one cause for alarm in last week’s notice is how people and companies providing services to overseas crypto exchanges that are perfectly legal in those jurisdictions could still find themselves subject to an investigation and being in violation of the mainland’s new anti-crypto law. Industry reactions were swift. Huobi, for example, stopped registering new customers in mainland China and said it plans to retire all mainland China user accounts by the end of this year. Crypto exchange Gate.io, which has around 25% to 30% of its users in China, will pause onboarding new Chinese users, but existing users won’t be affected at this point, Marie Tatibouet, CMO at Gate.io, told Forkast.News in an email. BitMart, another crypto exchange, said that it was banning account registration for mainland China, and it will stop serving all users there starting from Nov. 30. Crypto exchange BiKi has also ceased new user registration for those on the mainland on Sunday, it said in a Tuesday statement, adding that it will close its deposit function and will only allow its withdrawal function until Nov. 30. Urszula McCormack, a financial regulatory lawyer at King & Wood Mallesons, an international law firm headquartered in Hong Kong, told Forkast.News in an interview that there already has been a growing awareness among crypto-related companies — whose businesses can easily cross national borders — to be compliant, but China’s intensifying clampdowns on crypto are now bringing the legal issues into sharper focus.