Cryptocurrency exchange Huobi halts derivatives trading in China as Beijing turns up heat

Huobi has added China and the United Kingdom to its list of prohibited jurisdictions to trade derivatives
This followed Huobi’s decision in May to suspend bitcoin mining services and sales of cryptocurrency mining equipment in China

Digital currencies

Coco Fengin Beijing

Published: 10:30pm, 29 Jun, 2021

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Huobi, operator of one of the world’s biggest cryptocurrency exchanges, has added China to its list of prohibited jurisdictions to trade derivatives, as Beijing continues its crackdown on businesses related to bitcoin and other digital tokens.

Users in mainland China will be barred from Huobi’s derivatives trading services from this week, but existing clients can still use the exchange for spot trading. The news comes days after Huobi cut the amount of leverage available to users in the country to 5 times, down from 125 times previously.

These moves by Huobi, which was founded in China in 2013, signal that “it won’t provide products of high risk and leverage to Chinese users, complying with Beijing’s crackdown on cryptocurrencies to avoid financial volatility”, said Winston Ma, an adjunct professor at New York University (NYU) School of Law and author of the book The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace.

In May, Huobi was one of the first Chinese-founded platforms to suspend bitcoin mining services and sales of cryptocurrency mining equipment in the world’s second-largest economy.

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Huobi’s latest action has come on the heels of the decision by BTCChina, which ran the first cryptocurrency exchange in China, to leave the bitcoin business amid Beijing’s cryptocurrency crackdown. Last week, BTCChina said that it has “completely exited from bitcoin-related businesses” and that the firm sold its stake in the Singapore-registered bitcoin exchange ZG.com to an unidentified foundation in Dubai in May 2020.

Yang Linke, co-founder of BTCChina, said the company will invest in other blockchain-related businesses.

Beijing’s recent initiative against cryptocurrency started in May when three Chinese state-backed financial associations jointly issued a warning about the risks stemming from bitcoin and other volatile digital tokens.

Later that month, the government said it will clamp down on all cryptocurrency mining activities, according to a statement by the State Council’s Financial Stability and Development Committee chaired by Vice-Premier Liu He, the Chinese president‘s top representative on economic and financial matters.

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Analysts indicated that cryptocurrency exchanges are now distancing themselves from clients in mainland China to avoid being targeted by regulatory authorities.

“For the past few weeks, Beijing’s regulators focused on [cryptocurrency] mining,” said Ma of NYU’s School of Law. “The crackdown on trading and exchanges may just be starting.”

The People’s Bank of China, the country’s central bank, recently ordered financial institutions, including four state-owned commercial banks, and Ant Group-owned mobile payments provider Alipay to cut off all transactions linked to bitcoin. Ant Group is the financial technology affiliate of Alibaba Group Holding, which owns the South China Morning Post.

Apart from mainland China, Huobi has added the United Kingdom to its list of prohibited jurisdictions to trade derivatives.

Cryptocurrency exchange operator Huobi in May suspended bitcoin mining services and sales of equipment used for mining digital tokens in mainland China. Photo: Barcroft Media via Getty Images

Beijing’s recent actions represent the biggest cryptocurrency crackdown since 2017, when the central government banned initial coin offerings – a fundraising method using cryptocurrency – and ordered exchanges to shut down. That prompted companies like Huobi and Binance to move their headquarters overseas to comply with the country’s regulations.

Earlier this week, Binance Markets, the British subsidiary of cryptocurrency exchange operator Binance, was banned by the UK’s financial watchdog from doing any regulated business in the country.

Prices of cryptocurrencies have seen sharp fluctuations amid this regulatory crackdown in major economies. Bitcoin, the world’s biggest cryptocurrency in terms of trading volume, was priced at US$34,000 by Tuesday noon, down from its peak of about US$60,000 in mid April.