Chinese Homecoming — Crypto Companies Make Their Way Back to Asia

Published at: Sept. 25, 2019

In what is being considered a major step forward for Binance, CEO Changpeng Zhao (aka CZ) recently announced that his firm was all set to make its first strategic investment in China since leaving the Asian powerhouse back in 2017.

At the time, the government had enforced a local crypto trading ban that resulted in a number of firms either shutting down completely or relocating to other, more hospitable destinations.

In regard to this latest development, Binance — one of the world’s leading cryptocurrency exchanges — recently participated in a funding round estimated to be worth $200 million hosted by Beijing-based Mars Finance, a crypto/blockchain data and news provider. Some of the other big-name players that took part in the event or have previously invested in the venture include:

MatrixPort — A Singapore-based project headed by former CEO of Bitmain, Jihan Wu.Ceyuan Ventures — A Beijing-based venture capital firm.OKCoin — A digital asset trading platform providing spot trading services founded by Star Xu.Huobi — One of the world’s most-used digital currency trading platforms.IDG Capital - A U.S.-based venture capital firm.

Mars Finance is the brainchild of Wang Feng, a Chinese entrepreneur who has been active in the crypto space for quite some time now. It is estimated that his digital data aggregation venture, HuoXing, attracts a total of 124,000 monthly visits and ranks at around 70,947 in terms of overall web traffic.

To gain a better understanding of why Binance is heading back to China despite the country’s vehement opposition to all things crypto, Cointelegraph reached out to Sky Guo, CEO of enterprise-focused blockchain platform Cypherium, who highlighted that, “Binance understandably left in 2017, as the Chinese regulations for global interactions proved too murky for many companies.” However, he believes that the exchange’s turnaround echoes a growth of interest toward crypto from the government:

“Through its government resources, technological talent, and special economic zones, China has announced to the world that it intends to play a role in the upcoming tidal wave of decentralization. The sheer size of their market makes China impossible to ignore for companies like Binance who wish to become global household names.”

Additionally, he also pointed out that the Chinese government makes a clear distinction when it comes to its economic policy framework and the utilization of decentralized technologies. Guo believes that China is clearly looking to harness the energy and trajectory of the upcoming decentralization wave in order to benefit its national interests. He said:

“It seems as though China is wisely looking to stake its claim in this new generation of software production. Binance and its competitors need to position themselves as trusted facilitators in this new landscape. In doing so, their businesses will expand, but more importantly, cryptocurrencies will gain their validity in the eyes of governments around the world.”

Is Binance acting in haste?

Despite the Chinese government making it abundantly clear, time and again, that it is not interested in exploring crypto-related financial avenues, Binance’s decision to make its way back into the country definitely comes as a surprise — especially given the real possibility of government intervention and potential to make life difficult for the exchange and other crypto firms, both from a logistical and economic standpoint. In a conversation with Cointelegraph, co-founder and chief marketing officer of Binance Yi He said:

“Any investment has its risks. And our investment in Mars Finance is not really a “crypto investment.”

On the subject, Aries Wang, co-founder of Bibox, a digital asset exchange deploying the latest in big data analytics and AI-enhanced algorithms that optimize trades and transactions, speculated on why Binance made the move:

“Binance is looking to recover the engagement and interest of its Chinese community. Nowadays, most mainland China crypto traders would favor other large exchanges such as Huobi so in making this move back to China, I think Binance is looking to address the fact that they’ve seen a reduction in Binance’s power and influence in the Chinese market.”

A somewhat similar sentiment is shared by Jeffery Liu Xun, CEO at XanPool. He pointed out that by gaining control of a publication that has over 100,000 visitors, Binance will be able to, “much more easily control the narrative in China for these various coins that they are listing, IEOs,” especially those initial exchange offerings that it plans on listing on its platform in the near future.

Also, China seems to be in a position right now wherein it needs liquidity from outside its borders. In this regard, Xun believes that Binance is serving as a means to an end for the local government and that this entire development will turn out to be a win-win situation for all involved parties.

From a numbers standpoint, the Chinese trading community constitutes a large proportion of the world’s crypto transaction volume, so it’s unsurprising that a major exchange may be looking to re-enter the market.

Alternatively, Kyle Asman, founding partner at BX3 Capital — a business advisory firm — gave quite a unique point of view in regard to this episode. He told Cointelegraph that he believes, “Binance is working closer with the Chinese government than anyone might imagine.” Furthermore, Binance could not have re-entered the market without approval from the Chinese government:

“China needs to develop a digital payments alternative, as the powers that be there see that trend as something the rest of the world is doing: they don’t want to be left behind and want to have a horse in the race. CZ wants to have the largest cryptocurrency exchange in the world under his thumb. He sees the opportunity to be number-one.”

China exploring CBDCs with great gusto

Even though China’s hostility toward all things crypto has been quite evident for some time, the People’s Bank of China is now reportedly looking to release its very own central bank digital currency (CBDC). To facilitate this development, the government may need the expertise of established blockchain-related firms.

According to various unconfirmed reports that went viral last month, China’s bank is working on the aforementioned project in conjunction with a couple of market leaders like online retail giant Alibaba, internet giant Tencent as well as five other banking organizations.

Artem Popov, co-founder of blockchain-backed investment platform Roobee, believes that by launching a CBDC, China is trying to gain a huge amount of global financial leverage — especially amid news of Facebook planning to launch its much-hyped stablecoin offering Libra in the near future. Popov further told Cointelegraph:

“Chinese authorities want to keep a strong eye on the world money supply. One more reason is tightening control over national operations. The proposed currency is not supposed to provide society with financial freedom, like bitcoin does, but rather to give the Chinese government a perfect tool to monitor transactions.”

Earlier this month, Circle CEO Jeremy Alliare stated in an interview that no one in the world was closer to launching a CBDC than China. Similarly, Michael Yuan — founder of a new decentralized marketplace, OpenBay — shared his opinion with Cointelegraph that the People’s Bank of China, like all central banking institutions, dislikes currencies that it cannot control but has no issues with cryptocurrencies or blockchain technology that can remain under its purview at all times. He also discussed the dangers Binance is facing and trying to overcome:

“Binance operates in an unregulated financial market where they can be the exchange, the market maker, the investment bank, and the early-stage investor — all at the same time. That is the source of their enormous profits. But they cannot play this game forever. They will be regulated.”

Binance re-entering China makes sense

The Asian market is of massive significance to the crypto industry for a variety of different reasons. For starters, China houses some of the largest crypto mining farms in the world. Not only that, but a number of cryptocurrency firms and exchanges (such as OKEx, Bitfinex, KuCoin, Galaxy Digital, etc.) have also set up their bases in Singapore and Hong Kong — primarily because of the logistical and economic benefits that these regions offer. Lastly, in regard to this entire situation, Yuan told Cointelegraph:

“The company is playing the long game. Most of their users are Chinese nationals, so I think it is only natural for them to invest in Chinese projects.”

Yi He of Binance also believes that the market in Asia is growing at a fast pace, adding:

“Binance team has Asian genes, but not enough engaged in China. We hope to be more engaged in the blockchain ecosystem, and the investment helps us to better understand the Chinese market and dynamics in the industry.”

What comes next?

Despite China’s ongoing crypto ban, a lot of firms operating within this space still see immense financial potential in the country. Not only that, even the Chinese government can probably greatly benefit by partnering with some established firms to create its very own CBDC offering in the easiest manner possible.