Bitcoin in China

China's relationship with Bitcoin has been one of progressive restriction. The first major action came in December 2013 when the People's Bank of China (PBOC) prohibited financial institutions from handling Bitcoin transactions, though individual ownership remained legal. In September 2017, the government ordered all domestic cryptocurrency exchanges to shut down, driving major platforms like Huobi, OKCoin, and BTC China to relocate overseas. Initial Coin Offerings (ICOs) were simultaneously banned.

The final and most comprehensive crackdown came in 2021. In May, the State Council called for a crackdown on Bitcoin mining and trading. By September, the PBOC issued a notice declaring all cryptocurrency-related business activities illegal, including exchange services, token issuance, derivatives trading, and providing technology or information services for crypto transactions. Foreign exchanges serving Chinese residents were also declared illegal.

The ban is enforced through multiple channels. Banks and payment platforms like Alipay and WeChat Pay are required to identify and block crypto-related transactions. Internet service providers must block access to overseas exchange websites. Individuals caught facilitating crypto trading can face criminal charges including illegal business operations, money laundering, and fraud.

Since cryptocurrency transactions are illegal in China, there is no formal tax framework for Bitcoin gains. Prior to the 2021 ban, the tax treatment was ambiguous. China's Individual Income Tax Law did not specifically address cryptocurrency, but any gains from asset transactions would theoretically fall under the 20% property transfer income tax rate.

In practice, the lack of legal exchanges and the blanket ban on trading means the Chinese government treats Bitcoin as a prohibited activity rather than a taxable one. There are no reporting requirements for crypto holdings, and no tax deductions for mining-related expenses since mining is itself illegal. Chinese citizens who trade Bitcoin through offshore platforms operate entirely outside the domestic tax system.

The Chinese government's focus has been on criminal enforcement rather than tax compliance. Courts have handled cases involving Bitcoin primarily as fraud, illegal business operations, or money laundering cases rather than tax evasion cases. Property rights for Bitcoin in civil disputes remain legally uncertain, though some Chinese courts have recognized Bitcoin as virtual property with economic value in specific rulings.

Before the bans, China was the epicenter of global Bitcoin adoption. Chinese exchanges handled an estimated 80-90% of global Bitcoin trading volume at their peak in 2016-2017. Platforms like Huobi, OKCoin, and Binance (founded by Chinese-Canadian Changpeng Zhao) were among the world's largest. Millions of Chinese retail investors actively traded Bitcoin and other cryptocurrencies.

The successive bans dramatically reduced visible adoption. Domestic exchanges shut down, mining operations relocated, and banks severed ties with crypto businesses. However, peer-to-peer trading persists through platforms like Paxful, LocalBitcoins (before its closure), and Telegram-based OTC networks. Chinese traders also use VPNs to access overseas exchanges, though this carries increasing legal risk.

China's crackdown has been partially motivated by the desire to promote the digital yuan (e-CNY), a central bank digital currency. The PBOC views the digital yuan as the only legitimate digital currency, offering government control over money flows while providing some of the convenience of digital payments. However, the digital yuan is fundamentally different from Bitcoin, as it is centrally controlled, fully permissioned, and does not offer the scarcity or censorship resistance that drives Bitcoin adoption.

China's impact on Bitcoin mining was historically enormous. At its peak in early 2021, China hosted an estimated 65-75% of global Bitcoin hash rate. The concentration was driven by cheap electricity, particularly hydroelectric power in Sichuan and Yunnan provinces during the wet season (May-October), and coal-based power in Inner Mongolia and Xinjiang during the dry season. China was also home to the world's largest ASIC manufacturers, Bitmain and MicroBT, giving local miners first access to new hardware.

The May-June 2021 mining ban was the most disruptive event in Bitcoin mining history. Provincial governments ordered mines to shut down within days, forcing operators to relocate or sell hundreds of thousands of ASIC miners. The network hash rate dropped approximately 50% in a matter of weeks. Miners shipped equipment to the United States, Kazakhstan, Russia, Canada, and other countries in what became the largest forced migration of computing infrastructure ever.

Despite the ban, some underground mining operations are believed to persist in China. Cambridge Centre for Alternative Finance data has occasionally shown measurable hash rate originating from Chinese IP addresses post-ban, suggesting that some operators continue to mine covertly using VPNs or proxy connections. However, the scale is a fraction of what it was, and the risk of prosecution has grown as authorities continue periodic enforcement sweeps.