Underground Crypto Trading in China: Risks and Reality in 2025

China officially banned cryptocurrency trading in 2021. Banks can’t touch it. Exchanges are shut down. Mining rigs are confiscated. Yet, somewhere between the surveillance cameras and the digital yuan apps, billions of dollars are still moving in secret. In just one year - July 2022 to June 2023 - Chinese traders moved $86.4 billion in crypto. That’s more than all of Hong Kong’s legal trading volume during the same period. How? And why? And most importantly - is it worth the risk?

It’s Not Illegal to Own Crypto - But Trading Is

Here’s the twist: owning Bitcoin or Ethereum in China isn’t technically against the law. You can hold it in a wallet. You can even receive it as a gift. But if you try to buy, sell, or trade it through any platform inside China - whether it’s an app, a website, or a person - you’re breaking the rules. The People’s Bank of China made that crystal clear in 2021. No exchanges. No payment processing. No banking support. No legal protection.

But courts? They’ve sent mixed signals. In 2025, Chinese courts started calling cryptocurrencies “legal property.” That doesn’t mean you can trade freely. It means if someone steals your Bitcoin, you might have some legal standing to sue. It’s a loophole wrapped in contradiction. You can own it, but you can’t move it. You can hold it, but you can’t profit from it. That’s the gray zone where the underground market thrives.

How Do People Actually Trade Crypto in China?

Forget centralized exchanges. They’re gone. What’s left is a patchwork of workarounds built by ordinary people who refuse to give up on crypto.

First, peer-to-peer (P2P) platforms. These aren’t apps you download from the App Store. They’re Telegram groups, WeChat chats, and encrypted forums where buyers and sellers find each other. Someone in Shanghai wants to buy Bitcoin. Someone in Guangzhou has some. They agree on a price in yuan. The buyer sends cash via bank transfer. The seller releases the crypto from their wallet. No middleman. No oversight. Just trust - and risk.

Then there’s OTC brokers. These aren’t licensed financial advisors. They’re traders with multiple bank accounts, often in Hong Kong, who act as intermediaries. They take yuan from mainland clients, buy crypto overseas, and send it back. In return, they charge a fee - sometimes 5% or more. For big players moving $100,000 or more, that’s a small price to pay for access.

And then there’s the tech layer: VPNs. Thousands of traders use multiple virtual private networks to bypass China’s Great Firewall and access international exchanges like Binance or Kraken. Some use residential proxies. Others rent servers in Singapore or Thailand. It’s not foolproof - authorities have cracked down on popular VPN providers - but it’s still the most common way to get online access to global markets.

Hong Kong is the critical bridge. Many Chinese traders set up bank accounts there. They open shell companies. They use Hong Kong’s legal crypto framework to move money in and out of China without triggering red flags. It’s not illegal in Hong Kong. And as long as the money doesn’t visibly cross the border as crypto, it slips through.

Stablecoins like USDT and USDC are the glue holding it all together. Instead of buying Bitcoin directly, traders buy USDT with yuan, then trade USDT for other coins overseas. Stablecoins act as a digital bridge between the yuan and the crypto world. They’re less volatile. Easier to move. Harder to trace. And they’re everywhere in the underground system.

Why Take the Risk?

If you’re wondering why anyone would risk jail, fines, or frozen assets for crypto - look at what’s happening in China’s official markets.

In 2023, China’s main stock index, the CSI 300, dropped 35% over two years. Corporate earnings have missed forecasts for ten straight quarters. Savings accounts pay less than 1.5% interest. Real estate, once the go-to investment, is collapsing in value across dozens of cities. People are desperate for returns. Crypto isn’t just a gamble - it’s one of the few options left that offers any real upside.

A Morgan Stanley report found that Chinese investors are turning to crypto not because they’re tech enthusiasts, but because they’re fleeing a broken system. The government’s plan to stabilize markets with 2 trillion yuan in stimulus hasn’t worked. Trust in the yuan is eroding. And crypto, despite its volatility, still offers a path out.

This isn’t about teenagers buying Dogecoin. The average transaction size in China’s underground market is nearly double the global average. Most trades are between $10,000 and $1 million. These are wealthy individuals, business owners, and professionals using crypto as a hedge - not a hobby.

The Hidden Costs of Underground Trading

Let’s be clear: this isn’t free money. It’s high-stakes survival.

First, legal risk. The government doesn’t need to prove you’re a professional trader. Just one suspicious bank transfer, one flagged VPN connection, one whistleblower - and your assets can be seized. In 2024, over 300 people were investigated for crypto-related violations. Some got fines. Others got prison time. No one talks about it publicly, but the crackdowns are real.

Second, counterparty risk. If you trade P2P, you’re trusting a stranger. What if they take your yuan and disappear? What if they send you fake USDT? There’s no customer service. No chargeback. No regulator to call. You’re on your own.

Third, technical risk. VPNs get blocked. Wallets get hacked. Phone numbers get linked to illegal activity. One misstep - using the same device for banking and crypto, logging into a trading group on your work phone - and you could be flagged.

And fourth, psychological stress. Traders describe living in constant fear. Checking their bank statements daily. Avoiding conversations about crypto even with close friends. Worrying that their kid’s school might report them for “financial irregularities.” It’s not just about money - it’s about safety.

What’s Next? The Signs of Change

The government isn’t blind to this. They know it’s happening. And they’re watching.

In early 2025, Shanghai regulators started talking about regulating stablecoins. Not banning them. Regulating them. That’s a big deal. It suggests the government might be preparing to bring crypto under control - not eliminate it. Think of it like the digital yuan: state-backed, traceable, and tightly managed.

There’s also growing pressure from abroad. International exchanges still want access to Chinese users. They’re building Chinese-language interfaces, offering yuan deposits, and designing products for the market - even if it means bending rules. The global crypto industry isn’t going away. And China can’t isolate itself forever.

The contradiction between courts calling crypto “legal property” and the PBOC banning trading is unsustainable. At some point, the government will have to choose: either fully criminalize ownership - which would be politically messy - or create a controlled, licensed system. The latter is far more likely.

Who’s Really Playing This Game?

It’s not the average person. It’s not students or factory workers. It’s the ones with capital, connections, and tech savvy.

- High-net-worth individuals use Hong Kong corporate structures and private banking to trade legally offshore.

- Small business owners use OTC brokers to convert profits into crypto and store wealth outside the banking system.

- Professional traders run multi-layered networks with encrypted channels, burner phones, and rotating bank accounts.

- Family networks - a cousin in Canada, a sister in Singapore - help move funds across borders without triggering alerts.

The underground market isn’t chaotic. It’s organized. It’s resilient. And it’s growing because the alternatives are worse.

The Bottom Line

China’s underground crypto market isn’t going away. It’s adapting. It’s evolving. And it’s bigger than most people realize.

The government wants control. The people want opportunity. Crypto sits right in the middle.

Right now, trading crypto in China is like walking a tightrope over a canyon. One wrong step - a careless message, a flagged transfer, a compromised VPN - and you fall. But for many, the risk is worth it. Because the system they’re trying to escape is failing them.

The future? It won’t be all-out bans. It won’t be open markets. It’ll be something in between: a tightly controlled, state-monitored version of crypto - maybe tied to the digital yuan - where only the government gets to decide who trades, how much, and when. Until then, the underground will keep running. Quietly. Carefully. And at massive scale.