It’s 8 a.m. in Shanghai. A young tech entrepreneur checks his phone—not for social updates, but to track the latest price swings in Bitcoin. Meanwhile, China’s central bank has just updated its Digital Yuan test zones. Across the country, while cryptocurrency mining has been officially banned, underground trading continues. Strange contradiction, right? That’s the fascinating tension between crypto and banking in China—a push-pull relationship that’s reshaping the future of money in one of the world’s most powerful economies.
This isn’t just about tech-savvy investors or authoritarian crackdowns. It’s a far-reaching story involving national control, innovation, international influence, and the daily financial lives of over a billion people.
Let’s break it down and explore what makes this such a complex—and important—story for anyone interested in finance, geopolitics, or the future of banking.
A Quick Primer: What is Crypto?
Cryptocurrency (or “crypto”) is digital money that uses cryptography to secure transactions and operates on decentralized networks called blockchains. Think Bitcoin, Ethereum, and thousands of others.
It’s borderless, not issued by any government, and (in theory) immune to manipulation.
A Look Back: China’s Early Crypto Journey
China was once the global hub for Bitcoin mining, accounting for nearly 65% of global Bitcoin hash rate as of early 2021, according to Cambridge University.
But in mid-2021, China’s central government declared all cryptocurrency transactions illegal and banned crypto mining. This was the culmination of years of regulatory tightening:
- 2013: First warning issued against Bitcoin by the People’s Bank of China (PBoC).
- 2017: Initial Coin Offerings (ICOs) banned, exchanges forced to shut down.
- 2019: Bitcoin mining labeled “undesirable.”
- 2021: Nationwide crackdown on crypto trading and mining.
Why the hostility?
China’s View: The Risks of Uncontrolled Crypto
The Chinese government’s crypto bans stem from several concerns:
- Capital Flight: Crypto allows people to move large sums across borders—an issue for a government keen on controlling currency outflows.
- Fraud and Scams: Crypto’s anonymity makes it ripe for Ponzi schemes and money laundering.
- Financial Stability: Unregulated assets could destabilize markets or undermine the yuan.
- Energy Use: Mining consumed vast amounts of electricity. Inner Mongolia, for example, had serious power shortages.
In short, crypto represents a threat to control—something Beijing does not take lightly.
Meanwhile, Enter the Digital Yuan
Even as it cracked down on private cryptocurrencies, China ramped up efforts to develop its own central bank digital currency (CBDC): the Digital Yuan (e-CNY).
What Is the Digital Yuan?
- Issued by the People’s Bank of China
- Runs on a permissioned blockchain (not decentralized)
- Currently used in pilot cities like Suzhou, Shenzhen, and Chengdu
Key Stats:
- As of mid-2023, 260 million individual wallets had been created.
- Over 100 billion yuan ($14 billion) worth of transactions completed in the pilot phase (PBoC).
Why It Matters:
The e-CNY gives China full visibility and traceability of transactions, while also challenging the global dominance of the U.S. dollar—especially in cross-border trade with Belt and Road countries.
Crypto and Banking in China: The Tense Relationship
Let’s be clear: while crypto and banking in China are officially kept separate, they’re quietly interlinked.
- Underground Trading Still Exists
Despite bans, peer-to-peer (P2P) crypto trading continues using offshore exchanges and VPNs. Some Chinese investors also use Tether (USDT) as a stablecoin to bypass currency controls.
- Banks Monitor and Block Transactions
Chinese banks are required to monitor accounts for crypto-related activity. Transfers to exchanges are flagged and often frozen.
- Fintech Apps Adapt
Platforms like Alipay and WeChat Pay have been integrated into Digital Yuan testing—but they’re banned from facilitating crypto trades.
- CBDCs vs. Crypto: Competing Visions
Where crypto advocates want decentralization and privacy, the Chinese government prefers programmable money with full oversight.
In a way, the Digital Yuan is a direct response to crypto’s threat—a kind of centralized mimicry.
How This Affects People and Businesses in China
For Individuals:
- Limited access to global crypto markets
- Risk of prosecution for trading or mining
- Growing use of e-CNY for public transit, groceries, etc.
For Startups:
- Crypto-based innovation (like NFTs or DeFi) must go offshore
- Fintech firms are focusing on AI and payment integration, not blockchain
For Banks:
- Increasing alignment with PBoC on data sharing
- Required to prepare infrastructure for full Digital Yuan rollout
International Ripple Effects
- Global Crypto Markets React
When China banned crypto in 2021, Bitcoin’s price fell 30% in a single week.
- Mining Shifted to the U.S., Kazakhstan, and Canada
Cambridge’s 2023 report showed the U.S. now hosts over 37% of global Bitcoin mining.
- Other Governments Watching Closely
India, the EU, and Nigeria are studying both China’s crypto crackdown and Digital Yuan rollout as models for their own digital currency strategies.
The Paradox: Innovation vs. Control
China is a paradox. It’s a tech innovator leading in AI, 5G, and quantum computing—yet it exercises strict control over financial innovation.
The lesson? Innovation isn’t just about creating new tools; it’s also about shaping how those tools fit into society.
Practical Insights for Professionals and Curious Minds
- For Fintech Founders: If you’re in China, shift toward AI, regtech, and compliance tools rather than blockchain-based finance.
- For Investors: Monitor China’s regulatory stance—it still moves markets globally.
- For Banks: Prepare for a world where CBDCs may rival SWIFT and even Visa.
- For Policy Watchers: The Digital Yuan is a geopolitical tool. Expect it to show up in cross-border trade settlements in Southeast Asia and Africa.
- For Everyone: Understand that financial systems are shifting from physical to digital—and from open to controlled environments (at least in China).
Will Crypto and Banking in China Ever Coexist?
It’s hard to say.
The Digital Yuan will likely expand, and Beijing may experiment with tokenized assets or state-sanctioned blockchain platforms, like BSN (Blockchain Service Network).
But true decentralization? Not in the cards—at least not while the current political structure remains.
Still, the resilience of underground markets shows that the crypto ethos hasn’t disappeared—it’s just gone quiet.
Final Thought: A Delicate Dance
The relationship between crypto and banking in China isn’t a war—it’s a dance. One side steps forward (innovation), the other pulls back (regulation), and somewhere in the middle lies the future.
Will China eventually find a balance between control and creativity?
