Regulators Block Cryptocurrency Exchanges’ Social Media Accounts

Chinese regulators are targeting social media accounts being used by cryptocurrency exchanges to continue reaching Chinese investors despite being banned on the mainland six months ago, Caixin has learned.

Content on the WeChat account of OKEx — the overseas platform launched by China’s leading crypto exchange OKCoin after it closed at home — is no longer accessible. A notice on the account says it “is suspected of violating rules and laws according to users’ complaints” and is therefore blocked.

WeChat users trying to access other cryptocurrency companies' accounts are told they no longer exist, including that of Huobi, a onetime big digital-money player in China that moved after the bans.

OKEx and Huobi denied to Caixin that regulators had blocked their accounts on WeChat, China’s most popular social media platform. But Caixin learned from sources close to regulators that they had in fact stepped in.

In September, China became the first country in the world to ban fundraising through cryptocurrencies, known as initial coin offerings (ICOs), warning they were “giving rise to speculation and inviting suspicion of illegal financial activities.” It later expanded the crackdown to exchanges, prohibiting them from trading virtual currencies with legal tender.

But regulators learned that some exchanges were using social media platforms to disregard the previous regulations, according to a person close to the Office of the Special Rectification Work Leadership Team for Internet Financial Risks, which is the internet finance watchdog of China’s cabinet.

“All financial fraud crimes targeting Chinese investors, no matter whether they are based in China or overseas, should be regulated,” the source said.

Regulators will tighten enforcement of the bans and move to block the IP addresses of overseas cryptocurrency exchanges, the source said.

Despite its crackdown, China has not clearly defined ICOs in its laws. Meanwhile, there is no specific law spelling out punishment for prohibited virtual currency trading and digital fundraising. Without clear legal definitions, oversight and punishment, cryptocurrency players can still find ways to evade China’s restrictions, said the source.

Deng Di, chairman of Tai Cloud Corp., said that while some mainland cryptocurrency exchanges moved overseas as a result of the crackdown, others just went underground. The nature of the cryptocurrency world — with activity on the Internet, much of it anonymous — has stymied regulators. That challenge will continue “unless global authorities join hands in the regulation,” Deng said.

But countries around the globe have not responded uniformly to the emergence of cryptocurrency. While China and U.S. regulators have been wary of crypto trading, authorities in other countries have welcomed the innovation. For example, Japanese regulators in April recognized bitcoin and other cryptocurrencies as a valid form of payment, and in September, started to officially license bitcoin exchanges.

Despite the Chinese government’s concern, investor interest in cryptocurrency remains high.

Last week, Beauty Ecosystem Coin (BEC), a new digital token linked to beauty app operator Meitu Inc., saw its shares rise as high as 4,000% on its first day of trading at OKEx. Meitu is a China-based company that trades in Hong Kong.

BEC did not raise money through an ICO, in which the public could buy new tokens as investments. Instead, the team behind BEC gave away the coins for free. Industry insiders say that the issuance method is a way to get around being labeled an ICO, while generating enthusiasm for new tokens because of large initial price surges.

Contact reporter Han Wei (weihan@caixin.com)