Bybit Exchange recently opened registration for overseas Chinese users, causing anxiety among some employees. Shanghai lawyer Liu Honglin from Mankun Law Firm shared his interpretation on this matter. This article is sourced from an article by Mankun Blockchain Law Firm and organized by PANews.
(Background:
Unusual! Bybit suddenly opens registration for Chinese users, causing anxiety among internal employees
)
Table of Contents in this Article
Opened Bybit
Compliant Exchange
Betrayed Exchange Employees
One of the hottest topics in the industry these days is the price of the leading cryptocurrency BNB on the global cryptocurrency exchange Binance hitting $720, breaking a new all-time high. Another news is that the once reserved cryptocurrency exchange Bybit suddenly opened registration for users in mainland China.
Bybit is a well-known cryptocurrency exchange established in 2018, headquartered in Dubai. The company was founded by former forex traders and blockchain technology experts, committed to providing professional, intelligent, and intuitive trading experiences for global users.
In 2021, Bybit was the first to prohibit the use of users from mainland China, closing all accounts registered with Chinese phone numbers and API interfaces with Chinese IPs. On June 5, 2024, Bybit suddenly opened registration for users from mainland China, and Chinese ID cards could pass first-level identity verification, with a daily withdrawal limit of 1 million USDT. This information was not notified internally and explained, leading to panic among some employees.
Following this, Bybit released a statement claiming that opening registration for Chinese ID cards was to expand its service coverage to overseas Chinese communities, residing in China and other jurisdictions outside of restrictions. This move aims to meet the needs of Chinese expatriates and the international Chinese community. Bybit’s business has grown rapidly recently, with spot trading business surpassing the veteran exchange OKX. Informed sources analyzed that Bybit hopes to expand market share further by expanding into new regions, but this decision contradicts Bybit’s traditionally cautious style.
Bybit previously withdrew its application for a Hong Kong license because Hong Kong does not allow license holders to operate mainland China businesses. Opening registration for mainland China could bring more users to Bybit, but it may also face stricter regulatory scrutiny and potential legal risks.
Yesterday, the Hong Kong media South China Morning Post interviewed lawyer Honglin about this matter. I said the main reason is likely to be to occupy more market share and make money. With exchanges like Binance as wolves in the front and competitors like Bitget as tigers in the back, second-tier exchanges are actually facing a harder time during this bullish market. Time is running out for altcoins, retail investors, and exchanges.
Friends in the compliant exchange industry are slowly realizing a problem – compliance is good, but too much of it can be harmful. Compliance is a double-edged sword. With a license, projects can promote themselves to the outside world and appear strong, but at the same time, they limit what they can do and ultimately reduce their potential earnings.
Looking at the situation in Hong Kong, most entrepreneurs who enthusiastically applied for exchange licenses have recently withdrawn “friend applications.” This is because the enthusiasm for submitting license applications has passed, and actually paying for the license may be a bit painful. After all, the current market environment in Hong Kong is not ideal, and the cost-benefit ratio of obtaining a license is low, making it hard to make money. So, why bother?
Not only in Hong Kong, under the tightening policies, regulatory scrutiny of cryptocurrency exchanges is increasing worldwide. For example, countries like Singapore and Japan are strengthening regulatory requirements for cryptocurrency trading, requiring exchanges to implement stricter KYC (Know Your Customer) and anti-money laundering measures. This means that exchanges need to invest more resources to ensure compliance and face greater operational pressures.
For Bybit, choosing to open registration for mainland Chinese users is a risky attempt between massive market potential and strict regulatory environment. While there is immense market potential, there are also significant risks. Failure to balance market expansion and compliance requirements could lead to serious legal and operational risks.
Of course, today we are not discussing the market structure of cryptocurrency exchanges; what’s more important is the employees of these exchanges in China. I saw reports mentioning that mainland employees are somewhat fearful. In strict terms, according to China’s regulatory policy, employees of these exchanges in mainland China face significant risks. According to the “Notice on Further Preventing and Dealing with Risks of Speculation in Cryptocurrency Trading” jointly released by the Ministry of Public Security, the Supreme People’s Procuratorate, the Supreme People’s Court, and 10 other departments in September 2021, clear provisions were made for the operation of cryptocurrency exchanges in mainland China.
The third paragraph of the first article states, “Overseas cryptocurrency exchanges providing services to residents of China through the Internet also constitute illegal financial activities. For legal persons, non-legal persons, and individuals who provide marketing, settlement, payment, technical support, and other services to overseas cryptocurrency exchanges in China, the relevant responsibilities shall be pursued according to law.” This means that Chinese residents employed by overseas cryptocurrency exchanges and providing services such as marketing, settlement, payment, and technical support will be legally liable.
Here are some terms that need clarification:
“Domestic employees” are not just formal employees; in addition to signing formal labor contracts, signing service contracts, part-time contracts, or even providing labor results to exchanges without a contract and receiving compensation fall under the broad definition of “employees.” Even some “volunteers” who are deeply involved in the exchanges’ business in China may be considered employees, especially in criminal cases that focus more on substance over form.
“Marketing and promotion” include not only sales and marketing services provided by exchange employees but also the significant legal risks involved in providing promotional activities for overseas exchanges within China by KOLs.
“Payment settlement” mainly refers to financial institutions or non-financial payment settlement institutions providing fund settlement services to exchanges. While this aspect may seem strictly prohibited in China on the surface, many people still engage in cryptocurrency trading on exchanges through channels like bank cards, WeChat, Alipay, etc. Due to the large volume, it is challenging for these payment settlement institutions to supervise comprehensively.
However, major banks and payment settlement institutions like WeChat and Alipay have long prohibited users from using their payment channels for cryptocurrency transactions, and violators face corresponding consequences (account freezing, account logout, new account creation ban, etc.). The biggest risk lies in small platforms or those within the shadow economy that provide payment settlement assistance to cryptocurrency exchanges within China, as once caught by relevant authorities, the consequences could involve criminal charges.
“Technical support” mainly focuses on providing network connection support (usually involving the use of anti-censorship tools), platform construction support, and operation support for overseas exchanges in China. Different from marketing personnel in the “marketing and promotion” category, positions in “technical support” require strong technical capabilities and are indispensable for exchanges operating in China. However, this also determines that the legal risks associated with these positions are higher to some extent than those of marketing personnel.
Some friends may ask: if this cannot be done, why have my friends worked in the Shanghai office of a certain exchange or the Shenzhen office of another for several years without any issues?
Firstly, from the perspective of China’s judicial and regulatory policies, it is illegal for domestic employees of overseas cryptocurrency exchanges to provide services to residents within China. However, due to factors such as enforcement capabilities and enforcement costs, regulators have not taken any punitive measures against these individuals. If something were to happen, targeting the leaders or key figures would have a higher cost-benefit ratio.
Secondly, some large overseas cryptocurrency exchanges have significant volume. As long as they operate compliantly overseas and keep a low profile within China (assuming they have operations), they generally do not attract the attention of judicial authorities proactively. However, if significant trading risks arise, especially when domestic residents incur substantial losses on the exchange, these domestic employees are often the first to be investigated.
Therefore, if one truly intends to engage deeply in cryptocurrency exchanges and be active on the front lines, Lawyer Honglin advises everyone to plan their identities and prepare for overseas expansion. After all, making money lasts for a while, but living freely is lifelong.