Caixin
Sep 27, 2021 09:21 PM
BUSINESS

Shares Linked to Crypto Exchange Huobi Slump as Mainland Users Face Expulsion

China’s latest virtual currency bans drove Huobi Technology Holdings Ltd. to stop new Chinese mainland users from signing up.
China’s latest virtual currency bans drove Huobi Technology Holdings Ltd. to stop new Chinese mainland users from signing up.

Shares of Huobi Technology Holdings Ltd., an affiliate of cryptocurrency exchange Huobi Global, tumbled more than 30% in Hong Kong Monday morning, after China’s latest virtual currency bans drove the operator to stop new Chinese mainland users from signing up.

Huobi Technology, which mainly provides virtual asset related services to institutional clients, recovered some of those losses to close at HK$7.85 ($1.01), down 21.5%, as Huobi Global, a major Bitcoin and Ethereum trading platform, also promised to close existing China-based accounts by the end of the year.

The exchange said it will conduct an orderly clean-up of its existing mainland clients under the premise of ensuring the security of their assets, according to a statement released Sunday.

“Huobi Global has always been dedicated to offering digital asset trading services and ensuring the safety of customer assets, while following all applicable laws,” the company said.

Huobi Global’s move signals its exit from the mainland market and the possibility of its continued expansion in Singapore and Hong Kong, industry analysts said.

“The new requirements apply to user accounts that have been registered with Chinese phone numbers. Users in other countries and regions outside of mainland China will not be affected,” a Huobi Global spokesperson told Caixin in an email statement. The spokesperson said the company didn’t have any further details about expansion plans in Singapore and Hong Kong at this point.

China announced Friday that all crypto-related transactions will be considered illicit financial activity, including services provided by offshore exchanges. The notice, released by 10 government agencies including the central bank, the top court and the market and cyberspace regulators, was the most detailed and toughest blow yet dealt to the industry by authorities.

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According to a blockchain industry expert, regulatory authorities had repeatedly warned about risks related to virtual currencies, but the warnings had little effect because punishment had been lenient. Cryptocurrencies on trading platforms have also been vulnerable to price manipulation through “pump-and-dump” schemes via the spread of misinformation.

“Many people in the crypto industry and those operating in the grey area weren’t afraid at all,” the expert said.

A lot of offshore virtual currency exchanges were established by Chinese nationals, and although they have claimed that they block Chinese users from their platforms, these users remain their main source of profits.

For example, Binance, the world’s largest virtual currency exchange, announced that it would discontinue services for mainland users starting Sept. 4, 2017, after the Chinese government banned local trading platforms from exchanging cryptocurrencies or tokens for fiat money.

However, for a long time after, Binance continued to publish download tutorials for its app for Chinese users, and hinted that the app downloads could be accessed without a proxy.

Binance and Huobi, together with also popular exchange OKEx, had previously still served mainland customers whose transactions were routed through their banks or fintech platforms such as Alipay that offered nonbank payment services.

Although rules have already been put into place to stamp out crypto trading for its links to fraud, money laundering and excessive energy usage, Friday’s notice marked the first time the country’s public prosecution and law enforcement agencies — the Supreme People's Court, Supreme People’s Procuratorate and Ministry of Public Security — have participated in drawing up the related regulations.

The notice clarified that Chinese nationals who work at offshore virtual currency exchanges and organizations that provide promotional, payment and technical support to them will be investigated.

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It also urged the 10 agencies to join forces and establish a coordination mechanism to effectively handle crypto-trading risks. At the same time, it stressed cooperation and effective implementation among their local regulatory counterparts.

Cyberspace and telecom regulators will be tasked with shutting down websites, applications and mini programs involved in the virtual currency business, and tech companies are prohibited from providing services such as operating domains and marketing promotions for these activities.

Certain phrases including “virtual currency,” “virtual assets,” “cryptocurrency” and “crypto assets” are banned from names registered by companies or individual business owners, with the market regulator closely monitoring such registration procedures and advertising activities.

The headline of the story has been updated to clarify that Huobi Global, the crypto exchange, is not a publicly listed company.

Contact reporter Kelsey Cheng (kelseycheng@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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