Binance users engaged in cryptocurrency-related asset trading amounting to $90 billion in May 2023 within China despite cryptocurrency trading being deemed illegal in the country since 2021, a report by the Wall Street Journal reveals. Remarkably, these transactions established China as Binance’s largest market, contributing 20 percent of the total global trading volume, excluding trades conducted by a specific group of major traders.
Binance has ties to China
Binance’s connection with China has been intricate. Its founder, Changpeng Zhao, who is of Chinese origin but grew up in Canada, established the company in Shanghai in 2017. However, the government initiated a series of regulatory crackdowns on cryptocurrency exchanges, expressing concerns that these platforms could be exploited for illegal capital outflows from the country. In response, Zhao decided to relocate Binance’s operations to Japan.
During that period, the exchange announced its intentions to assess its user base and proceeded to transfer accounts of China-based customers to a “withdrawal only” mode, prohibiting them from conducting further trades. The company emphasized its commitment to compliance, stating that it has consistently adhered to the relevant requirements set forth by local regulatory authorities, as mentioned in an official statement released in October 2021.
Following the ban on cryptocurrency trading in China, Binance experienced a decline in its China business, dropping from 24% of overall trading volume in the middle of 2021 to 17% by the end of the same year, as reported by a former employee who had access to the data. However, the situation changed in 2022 when the China business rose again, maintaining high activity levels. In May 2023, China-based customers traded over $90 billion in cryptocurrencies, primarily focusing on futures contracts linked to cryptocurrencies.
Although the Binance.com website is blocked in China and not accessible to China-based users, the company has found ways to enable its users to circumvent these restrictions. According to the report, the exchange has directed users to visit different websites with Chinese domain names, subsequently rerouting them to the global exchange. According to internal documents and a former employee, Binance has historically adopted a lenient approach when verifying its users’ identities in China. Following the ban, less than half of China-based registered users underwent know-your-customer checks in the subsequent months.
Interestingly, according to some of the current and former employees, Binance’s investigations team still collaborated closely with Chinese law enforcement to identify potential criminal activity among the more than 900,000 active users.
Prior claims revealed Binance’s existence in the China market
An earlier report by the Financial Times revealed that the leading cryptocurrency exchange, Binance, had been concealing significant ties to China, contradicting its claims of leaving the country after the 2017 crypto crackdown. The disclosed information highlighted the existence of an office used until 2019 and the use of a Chinese bank for salary transactions, raising concerns about potential legal complications and suspected connections with the Chinese government.
U.S. Senator Bill Hagerty (R-TN) went as far as alleging that the Chinese government controls Binance in a Senate Banking Committee hearing. Despite Binance’s denials regarding any legal entities or ties in China, Hagerty expressed concerns over the lack of transparency regarding the exchange’s reserves.
Zhao has commented about this and how the Chinese origin of he and other staff members has been interpreted to suggest a strong connection to China. He expressed that the exchange’s most significant challenge is being labeled a criminal entity in China, despite being an offshore exchange. Simultaneously, he noted a tendency in the West to overemphasize Binance’s connection to being a “Chinese company.” Zhao shared this sentiment in a blog post written last year.
In addition to its China-related issues, Binance is facing a regulatory crackdown globally. In June, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance and its founder, Changpeng Zhao, accusing them of operating illegally and misusing customer funds. Furthermore, the U.S. Justice Department is investigating the exchange. As a result of these regulatory challenges, Binance’s market share among U.S. users has significantly reduced, and the company recently cut over 1,000 jobs globally out of its previous workforce of 8,000 employees.