In China, a cat-and-mouse game to rein in crypto

Three years ago, China's government imposed sweeping restrictions on trading cryptocurrencies.

- Brian Spegele & Rebecca Feng

But that hasn't stopped brokers, including Chen Xin, from helping people convert large amounts of Chinese yuan into crypto.

Working as a middleman in China's underground financial system, Chen would routinely accept more than $100,000 in cash and then swap it for the cryptocurrency tether using overseas trading platforms. He knew not to ask too many questions about where the cash came from—but he assumed a lot of it wasn't clean.

"The money is dirty," he told his wife, according to testimony he delivered later as a witness in a Chinese court case that was part of the government's efforts to clamp down.

The role of traders such as Chen in facilitating Chinese crypto transactions is largely invisible to the outside world. But a Wall Street Journal examination of court cases and Chinese government notices sheds new light on how they operate—and how they are fueling Chinese demand for crypto despite government efforts to rein it in.

In some cases, criminal groups are trading crypto to launder ill-gotten gains, boosting crime syndicates beyond China's borders, including ones trafficking fentanyl, U.S. prosecutors say. In other cases, middle-class urbanites are using it to secretly move money out of the country, in violation of government rules designed to restrict the flow of money across China's borders.

The activity is exceedingly difficult to stamp out and undercuts Beijing's image of strict control over the economy and financial industry.

The total scale of crypto activity in China is unknown. After China sought to limit access to mainstream crypto exchanges in 2021, many users turned to over-the-counter trading and peer-to-peer networks that are tougher to track.

Blockchain data firm Chainalysis estimates $95 billion flowed to China-based over-the-counter brokers it analyzed from late 2023 through mid-2024, more than double the level of the same period two years earlier.