Underground Crypto Trading in China: Risks and Reality

China banned cryptocurrency trading in 2021. Banks can’t touch it. Exchanges are shut down. Mining rigs were seized. Yet, between July 2022 and June 2023, Chinese traders moved $86.4 billion in crypto - more than all of Hong Kong during the same period. How? Because bans don’t kill demand. They just push it underground.

What’s Actually Illegal - and What’s Not

The Chinese government doesn’t outlaw owning Bitcoin or Ethereum. You can hold it in a wallet. No one’s coming to your door to take your coins. But if you try to buy, sell, or trade it inside China? That’s a violation. The People’s Bank of China (PBOC) made it clear: no exchanges, no banking support, no payment processing. Even advertising crypto services is risky.

Here’s the twist: in 2025, Chinese courts started calling cryptocurrency legal property. That means if someone steals your Bitcoin, you can sue for damages. But if you use that Bitcoin to buy something? You’re breaking the law. It’s a legal contradiction that creates confusion - and opportunity.

How People Are Still Trading

You won’t find a Binance app on your Chinese phone. But you’ll find people using VPNs to access foreign exchanges. Not just any VPN - layered ones. Traders stack multiple services, switch servers constantly, and use private proxy networks to avoid detection. Some even route traffic through Hong Kong, where crypto is legal, to make transactions look like they’re happening outside mainland China.

The real engine behind this underground market? Over-the-counter (OTC) brokers. These aren’t flashy platforms. They’re individuals or small groups with Telegram channels, WeChat groups, or encrypted forums. They match buyers and sellers directly. A trader in Shanghai wants to buy Bitcoin. They find a broker in Guangzhou who has dollars. The broker buys BTC on a foreign exchange, then the buyer pays in yuan via bank transfer or Alipay. Escrow systems keep things fair - for now.

Stablecoins like USDT are the glue holding this system together. Why? Because they’re easier to move across borders and less volatile than Bitcoin. You can convert yuan to USDT, send it to a Hong Kong account, then trade it for other cryptos. It’s a workaround that’s become standard.

Who’s Doing This - And Why

This isn’t just hobbyists buying Dogecoin. The average trade size in China’s underground crypto market is nearly double the global average. Around 3.6% of trades globally are between $10,000 and $1 million. In China, it’s closer to 7%. These are serious investors.

Why? Because traditional markets are collapsing. China’s CSI 300 index fell 35% over three years. Corporate earnings have missed forecasts for ten straight quarters. The government threw 2 trillion yuan into the stock market to prop things up - it didn’t work. People are desperate for better returns. Crypto, despite the risks, offers something stocks don’t: a chance to escape the system.

High-net-worth individuals use Hong Kong bank accounts and corporate structures to trade legally on global platforms. Retail traders rely on trusted friends or local OTC brokers. Some even use family connections abroad to move money. It’s not just about profit - it’s about control over your own wealth.

The Real Risks

You think you’re safe because you’re not using an exchange? Think again.

First, the law can change overnight. In May 2025, rumors swirled that personal crypto holdings might be restricted too. No official announcement came - but the uncertainty alone froze some traders. If the government decides to crack down on ownership next, your wallet could be flagged. Your bank account could be frozen. You could face fines - or worse.

Second, there’s no safety net. If your OTC broker disappears with your yuan? No recourse. No customer service. No insurance. You’re on your own. Scams are common. Fake wallets, fake trades, fake escrow services - they all exist. And because everything is hidden, authorities won’t help you recover losses.

Third, your digital footprint is a liability. Using a VPN doesn’t make you invisible. Authorities monitor traffic patterns. If you’re sending large sums to Hong Kong accounts every month, that pattern gets noticed. Banks are required to report suspicious activity. One flagged transaction can lead to a full investigation.

The Bigger Picture

China isn’t just trying to stop crypto. It’s building something else: the digital yuan, or e-CNY. This isn’t Bitcoin. It’s a state-controlled digital currency that tracks every transaction. The government wants to eliminate cash, increase financial oversight, and prevent capital flight. Crypto threatens all of that.

The underground market proves one thing: people will find ways to move money when they feel trapped. Even with surveillance cameras on every street, firewalls blocking global websites, and banks under strict orders - people still trade crypto. It’s not rebellion. It’s adaptation.

Shanghai regulators are now talking about stablecoin rules. That’s a signal. Maybe they’re not trying to eliminate crypto forever - just control it. Maybe the goal is to replace decentralized money with state-backed digital money. If that’s the case, the underground market might shrink… or evolve into something even harder to stop.

What Happens Next?

The underground market isn’t going away. Not yet. Not unless China fixes its economy. As long as stocks keep falling, savings lose value, and people feel powerless over their finances, crypto will be the escape hatch.

Traders are getting smarter. They’re using more secure tools. They’re diversifying their methods. Some are even moving assets to Singapore or Dubai. Others are waiting to see if the government softens its stance.

But here’s the truth: no matter how advanced the tech gets, no matter how many VPNs you use - you’re always one policy change away from losing everything. The risks aren’t just financial. They’re personal. They’re legal. They’re psychological.

If you’re thinking about joining this market, ask yourself: is the potential return worth the constant fear? The sleepless nights? The risk of losing not just money, but freedom?

There’s no guarantee you’ll profit. But there’s a 100% chance you’ll be watching your back.