Underground Crypto Trading in China: Risks and Reality

China officially banned cryptocurrency trading in 2021. Banks can’t touch it. Exchanges are shut down. Mining rigs? Crushed. Yet, in the shadows, Chinese traders moved $86.4 billion in crypto between July 2022 and June 2023. That’s more than all of Hong Kong’s legal trading during the same period. How? And why? And most importantly-how risky is it?

It’s Not Illegal to Own Crypto. But Trading? That’s a Different Story.

The Chinese government doesn’t say you can’t hold Bitcoin or Ethereum. You can keep it in your wallet. But if you try to buy, sell, or exchange it within China’s borders? That’s a violation. The People’s Bank of China (PBOC) made it clear: no exchanges, no bank transfers, no crypto services. Any business offering crypto trading gets shut down. Fines. License revoked. Sometimes jail.

But here’s the twist: in 2025, Chinese courts started calling cryptocurrency ‘legal property.’ That doesn’t mean it’s legal to trade. It means if someone steals your Bitcoin, you can take them to court. It’s a legal loophole that gives holders a sliver of protection-but not a path to buy more.

Why Are People Still Trading? The Real Reason Isn’t Speculation

It’s not about getting rich quick. It’s about survival.

China’s stock market lost 35% over three years. Corporate earnings? Missed forecasts for ten straight quarters. The government threw in 2 trillion yuan to prop things up. It didn’t help. People saw their savings shrink. Real estate? Collapsing. Bonds? Low returns. The only thing left? Alternative assets.

Crypto became the only escape hatch. Not for gamblers. For people who needed to protect their wealth. For investors who wanted exposure to global markets. For those who saw the digital yuan as a government-controlled alternative-and didn’t trust it.

The underground market isn’t driven by teenagers buying Dogecoin. It’s driven by professionals, small business owners, and families with life savings on the line. The average transaction size in China? $10,000 to $1 million. Nearly double the global average.

How It Actually Works: The Hidden Infrastructure

You won’t find a Binance app on your phone in Beijing. But you’ll find someone who knows someone who knows a Hong Kong broker.

Here’s how the system runs:

• VPN networks: Traders use multiple, layered VPNs to access international exchanges. Some use private proxy servers, not commercial ones, to avoid detection.
• OTC brokers: Over-the-counter dealers act as middlemen. You send yuan to their bank account. They send crypto to your wallet. No exchange involved. No paper trail.
• Hong Kong as a bridge: Thousands of mainland Chinese have bank accounts in Hong Kong. Some set up shell companies. From there, they trade legally. Then move crypto back to China via P2P or cash transfers.
• Stablecoins are the glue: USDT and USDC are the most traded assets. They’re stable. Easy to move. Easy to convert back to yuan through trusted OTC channels. They’re the invisible currency of the underground economy.

These aren’t random acts. They’re systems. Traders build networks. They vet brokers. They use encrypted apps. They avoid using their real names. One wrong move-and your account freezes. Your money disappears.

The Real Risks: It’s Not Just About Getting Caught

Yes, you could be fined. Or worse. But the biggest dangers aren’t legal-they’re operational.

• Counterparty risk: You send 500,000 yuan to an OTC broker. They vanish. No contract. No recourse. You’re out.
• Bank account freezes: If your bank notices unusual transfers-especially to Hong Kong-you could get locked out. No access to your savings. No explanation.
• VPN shutdowns: China blocks thousands of VPNs every month. One day your connection works. The next, it’s dead. You lose access to your exchange. Your crypto? Locked.
• Scams and phishing: Fake OTC groups on WeChat. Fake Telegram channels. Traders lose millions because they trusted someone who looked legit.
• No insurance: If your wallet is hacked? No FDIC. No compensation. You lose it all.

And enforcement is getting smarter. In 2024, Shanghai authorities started tracking crypto-linked bank transfers using AI. In 2025, reports surfaced of new rules limiting personal crypto holdings. Even if those rules aren’t official yet, the message is clear: the net is tightening.

Who’s Really Doing This? And How Do They Stay Safe?

It’s not one group. It’s three layers.

High-net-worth individuals use private banking in Hong Kong. They trade through institutional platforms. They have lawyers. They move money slowly. They’re careful.

Professional traders run small funds. They use multiple OTC brokers. They hedge with stablecoins. They time trades around Chinese holidays and global market swings. They know the rhythm.

Regular people use friends, family, or local contacts. They trade $5,000 at a time. They rely on word-of-mouth trust. They’re the most vulnerable. One bad deal-and their life savings are gone.

Those who survive? They don’t brag. They don’t post on social media. They use burner phones. They meet in person. They avoid digital footprints. They treat crypto like cash-risky, but necessary.

What’s Next? The Government’s Quiet Shift

China isn’t giving up on digital money. It’s building its own: the digital yuan (e-CNY). It’s centralized. Trackable. Controlled. And it’s being rolled out everywhere-from public transit to grocery stores.

But here’s the irony: the more they push the digital yuan, the more people want something they can’t control. That’s why underground crypto persists.

Shanghai regulators recently started talking about regulating stablecoins. Not banning them. Regulating them. That’s a signal. Maybe China isn’t trying to kill crypto forever. Maybe it’s trying to bring it under state control-slowly, quietly.

If that happens, the underground market might not disappear. It might just change shape. Become less risky. More formal. But for now? It’s still a gray zone. And in that gray zone, people are still trading.

Bottom Line: It’s Not a Game. It’s a Survival Strategy.

China’s crypto ban didn’t stop trading. It forced it underground. And underground markets don’t vanish. They adapt. They grow. They get smarter.

If you’re thinking about joining? Don’t. The risks far outweigh the rewards. You’re not investing. You’re gambling with your savings, your bank account, and your legal safety.

But if you’re trying to understand why it still exists? Look at the economy. Look at the lack of options. Look at the people who’ve lost faith in the system. Crypto isn’t the problem. It’s the symptom.

China’s crackdown didn’t kill crypto. It just made it harder. And harder doesn’t mean gone.