The industry response to China’s latest crypto crackdown suggests it’s the most serious yet

From the outside, it may appear that China’s new crypto ban is just the latest in a series of similar policy pronouncements dating back to 2017.

But if the responses by crypto companies that serve Chinese users are any indication, this crackdown is the most severe to date.

On September 24, the People’s Bank of China (PBoC), along with nine other central government and judicial agencies, released a policy stating that all crypto-related transactional businesses — whether they involve fiat-to-crypto or crypto-to-crypto trading — will from now on be treated as illegal.

The tone of the new policy is much tougher than the central bank’s 2017 ban on initial coin offerings. In the 2017 ban, the PBoC said that no token fundraise and exchange platforms shall allow exchange among fiat currencies, tokens and virtual currencies. But it did not go so far as to call these illegal activities.

Another notable difference is that the new policy was co-signed by the Supreme People’s Court, the Supreme People's Procuratorate and the Public Security Ministry, suggesting law enforcement agencies are now directly involved.

On the same day, China’s central macroeconomic planning agency, the National Development and Reformation Commission (NDRC), released a separate policy that is designed to intensify the crackdown on crypto mining specifically. It essentially serves as a legal basis for clearing out all crypto mining operations that still remain in the country.

While both policies were released on Friday, the PBoC's document was co-signed on September 15 while the NDRC's was inked on September 3. That may explain why since earlier this month there have been widespread rumors within the Chinese crypto community that new, harsher policies could come out around mid-September.

The rumors contributed somewhat to the crypto market selloff at the time. But they were not confirmed officially until the Friday releases, which has caused a strong ripple effect over the past several days even though many initially shrugged off the news.  

Below is a timeline of how the industry has reacted to the new, harsher regulatory environment in China.

Sept. 24

Within hours after the PBoC’s announcement, crypto exchange Huobi, one of the major trading venues that serve Chinese customers since 2013, suspended new account registrations for users with mainland China mobile numbers.

Then, Hangzhou-based Sparkpool, one of the largest Ethereum mining pools, said it would no longer serve China-based miner customers.

Sept. 25

The next day, TokenPocket and DeBank, two popular DeFi wallets used by Chinese users, said they would limit the services for mainland China customers to basic wallet functions. All other services that involve crypto trading-related transactions, such as DeFi and Dapps, will be disabled.

BHEX, a second-tier crypto exchange that serves Chinese customers and was founded by a former senior executive of Huobi, also said it will shut down operations permanently by Oct. 23. Its main site and mobile app will not be accessible after that date and BHEX will only continue operating its Singapore service.

Sept. 26

Decentralized protocols Loopring and ZKSwap announced on Sunday they will no longer allow China-based IP addresses to access their web, wallet and app services relating to crypto trading. 

Then Binance, following Huobi’s lead, said it would prohibit new user registration for users with mainland China mobile numbers. 

On Sunday afternoon, Huobi then officially announced it will retire all existing user accounts that are verified with mainland Chinese IDs by Dec. 31, marking the end of an eight-year journey since Huobi was founded in its home country. 

AEX, another second-tier crypto exchange that has been serving Chinese users since 2013, said it will prohibit access from mainland China IP addresses. AEX did not say, however, it will suspend all existing China-based user accounts. 

Sept. 27

On Monday, Xinhua News Agency reported that the municipal Development and Reformation Commission in Bayannur, Inner Mongolia, raided a warehouse after local residents tipped them off. The government agency apparently confiscated 10,100 crypto miners stored there, though the wording of the report suggested the equipment was not even operating.

Lately, China’s state-owned electrical utility has been refining its ability to detect mining operations. An internal memo seen and verified by The Block lays out exact techniques that China State Grid is using, including initial screens of residential and business users that have an average daily energy consumption of over 30 kilowatt-hours.

The utility plans to further examine those users to find out whose weekend and weekday energy consumption levels have a difference that’s less than 10%. The thinking is apparently based on the assumption that crypto miners usually operate 24/7, meaning that their energy consumption should remain the same on weekdays and weekends.

This new screening policy could create headwinds for remaining crypto miners in China, especially the growing numbers of at-home GPU-based mining operations. 

That may help explain why on Tuesday night China time, Sparkpool, which had been Ethereum's second-largest mining pool, said in a statement that it will shut down all of its operations. It has been running its Ethereum mining pool since 2016. Sparkpool said the official close will be on Sept. 30 and informed mining customers to switch their hash rate.

Since then, the Ethereum computing power connected to Sparkpool has dropped by over 15%, and competing pools are seeing different levels of growth as a result. 

Within hours after Sparkpool’s surprising shutdown notice, it appears that users have overwhelmed the app and website of F2Pool, currently the third-largest Ethereum mining pool. F2Pool now also requires that new users acknowledge a disclaimer on its service page that says F2Pool doesn’t serve China-based customers and reserves the right to freeze assets if it unilaterally believes a user is based in China. But the pool has not officially announced it will stop serving China-based mining customers.

Meanwhile, Chinese B2B e-commerce giant Alibaba has notified all third-party merchants on its platform that sales of crypto mining equipment will be prohibited, effective on Oct. 8. Alibaba is one of the most important marketplaces that Chinese crypto mining hardware wholesalers and distributors use to reach overseas businesses.

Sept. 28

Crypto market data sites CoinGecko and CoinMarketCap have now become inaccessible in China. Local tests and search results on Greatfire.org show that CoinGecko and CoinMarketCap are 100% blocked. 

AICoin and Feixiaohao, two other China-based crypto market data aggregation apps, also said today that they will no longer provide services to users who access via Chinese IPs. And more second-tier crypto exchanges that cater to Chinese customers, BitMart and BIKI, also announced they will suspend new user registrations from China. BitMart said it will retire all existing user accounts that are verified with Chinese IDs. BIKI said it will shut down operations after Nov. 30.

On top of all that, Hubei-based Beepool, currently the fourth largest Ethereum mining pool by real-time hash rate, announced on Tuesday that it will also shut down all services, effective Oct. 15.

It’s likely that even more crypto companies that have strong roots in China will shut down services in the coming days. For instance, we still haven’t heard any announcements from OKEx, Huobi’s largest rival in the Chinese market.