China Wants to Restrict Cryptocurrency Websites

The crackdown followed efforts to force Chinese banks to report any cryptocurrency-related transactions. Traders shifted their capital in response. Hong Kong emerged as the preferred destination because the border allows residents to move money into local bank accounts and trade through exchanges based there. Japan and South Korea also attracted Chinese investors, though Beijing could slow the Hong Kong flow by monitoring capital movements at the border. The government cannot bar residents from conducting business with Hong Kong firms.

Huang Zhen, a researcher at the People's Bank of China, articulated the government's stance. Bitcoin and other cryptocurrencies posed a fundamental threat, he argued, because they bypassed traditional financial intermediaries and operated without central control. "The sovereign state is still the fundamental player in global politics and carries with it the characteristics of the world financial system. Cryptocurrencies and other virtual currencies attempt to challenge the sovereign state's right to issue currency, requiring the nationalization of currency issuance. China has a clear understanding of digital forms of money, and is actively engaging in relevant work," Zhen said.

Ron Cao, a venture capital investor who funded Chinese crypto exchanges, watched the policy shift unfold. "The government is reacting so fast. That shows the strength of the government. It's going to be more tight, that's for sure," he told the Wall Street Journal.

The squeeze was already reshaping the market. Huobi and OKCoin, which until months earlier ranked among China's largest trading platforms, announced expansions into Japan and South Korea. Other exchanges that originated in China had relocated abroad. Hong Kong stood to capture much of the displaced trading volume as Beijing continued hardening its stance against domestic crypto activity.