China’s crypto paradox: A booming market despite the ban?

​China has spent years trying to shut down cryptocurrency trading, but its crypto market is far from dead. Billions of dollars continue to move through digital assets, while Hong Kong expands regulated crypto services. Is China's cryptocurrency ban working, or is the market finding ways around it?

Hong Kong expands digital assets as mainland China maintains its ban

Hong Kong is accelerating its push into digital finance, even as mainland China maintains strict restrictions on cryptocurrencies. On November 4, the city's government reported further progress in tokenized investment products, stablecoin licensing, and financial infrastructure, highlighting two sharply different approaches to digital assets within China.

By the end of September, Hong Kong had authorized 17 retail investment products with tokenized classes, including money market funds, gold investment products, and exchange-traded funds. Their tokenized classes held approximately HK$ 10.3 billion ($1.3 billion) in assets under management. Two tokenized money market funds also began round-the-clock secondary trading on licensed virtual asset platforms in late October.

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The developments follow another significant step. On November 2, the Hong Kong Monetary Authority expanded Project Ensemble to support 24-hour interbank settlement of tokenized deposits using central bank money. The initiative involves 12 banks and 20 industry participants, including major financial institutions exploring blockchain-based payments and securities transactions.

Hong Kong's approach relies on licensing and supervision rather than prohibiting cryptocurrency businesses outright. Its stablecoin licensing regime produced the first two issuer licenses in April 2026, while regulators are developing rules for additional virtual asset services. However, Hong Kong operates under a separate financial regulatory system, and these developments do not signal that mainland China is preparing to lift its cryptocurrency restrictions.

China's cryptocurrency market remains active despite restrictions

Mainland China's cryptocurrency economy is far from inactive. Blockchain analytics firm Chainalysis estimates that the country recorded at least $176.3 billion in cryptocurrency activity during the 12 months through June 2026, making it one of East Asia's largest digital asset markets despite restrictions on exchanges and other crypto businesses.

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Much of this activity takes place outside conventional trading platforms. Domestic peer-to-peer transfers accounted for 59.1% of China's estimated cryptocurrency economy, with users transferring assets directly between wallets. Chainalysis also found that the number of unique wallets sending stablecoin P2P transactions increased 43-fold between early 2024 and mid-2026. These figures suggest growing use of decentralized transfer channels, although wallet activity does not necessarily indicate the number of individual investors.

Stablecoins are particularly important. China-linked wallets transferred approximately $104.1 billion in stablecoins across 18.1 million transactions during the study period. The high transaction volume suggests that stablecoins are being used for frequent transfers rather than simply held as investments, although the exact purposes of these transactions are difficult to establish.

Beijing, however, has shown little willingness to accommodate this market. In February 2026, Chinese authorities reinforced the prohibition on cryptocurrency-related business activities, including exchange services, token issuance, and unauthorized real-world asset tokenization. The rules also restricted overseas providers from serving mainland customers and prohibited unauthorized issuance of yuan-pegged stablecoins abroad. Cryptocurrency mining remains subject to a nationwide crackdown.

China's digital yuan offers an alternative to private cryptocurrencies

While restricting Bitcoin trading and privately issued stablecoins, China is expanding its own digital currency infrastructure. The digital yuan, or e-CNY, is issued by the People's Bank of China and is designed to function as official money rather than a speculative investment.

China announced another upgrade to its digital yuan infrastructure in October 2026, expanding support for smart contracts and financial applications. By September, cumulative e-CNY transactions had reached approximately 31 trillion yuan ($4.6 trillion) across 4.3 billion transactions. The figures illustrate the scale of activity processed through the system, although cumulative transaction value does not reveal how many people use it regularly.

The digital yuan can support retail payments, government transactions, and more complex financial operations. Smart contracts could allow payments to be executed automatically when specified conditions are met, potentially supporting trade finance and business settlement. Unlike decentralized cryptocurrencies, however, the e-CNY operates within a centrally managed monetary framework.

Can China benefit from crypto innovation without lifting the ban?

For China's digital finance industry, the challenge is turning technological progress into commercially viable services. Hong Kong's tokenization initiatives offer one potential route, although their long-term commercial impact remains uncertain.

Eddie Yue, chief executive of the Hong Kong Monetary Authority, said in November that Project Ensemble had moved beyond early testing:

“In just two years, Project Ensemble has transitioned from experimentation and piloting to a new phase focused on promoting the commercialisation of tokenisation applications in Hong Kong.”

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Banks could use tokenized deposits to improve settlement, while digital securities may reduce administrative costs and allow transactions outside conventional market hours. However, these services must demonstrate advantages over existing financial infrastructure, and their expansion in Hong Kong does not guarantee broader access for mainland investors.

China's digital asset landscape presents two different forms of growth. Private cryptocurrencies continue circulating despite restrictions, while regulated digital finance expands through financial institutions and central bank infrastructure. Whether these developments can coexist will depend on Beijing's policies, Hong Kong's commercial progress, and continued demand for cryptocurrencies outside traditional financial channels.