It all started as follows: In January 2017, representatives from the People’s Bank of China entered the offices of the biggest crypto exchanges in the country and sat down with their managers.
From the financial regulator’s Shanghai and Beijing bureaus, the clerks told the exchanges at the time they were interested in defining if anti-money laundering and capital regulation warrants were being met.
According to Robin Zhu, major operating official at Huobi, the regulators had an hidden aim that January day.
“The regulator wanted to grab a big picture of how significant cryptocurrency trading was in China – how does bitcoin work; where does the money come from; where does it go to; how do people make and lose money?” Zhu said.
The PBoC also asked for the information on the exchange’s trading capacity and user numbers. Additionally, Huobi had been regularly submitting information and reports about different countries’ government policy in an effort to help the PBoC understand the field.
Zhu certainly thought something was up. To him, it looked like the PBoC was collecting information in an order to build basis for regulating the industry, something many exchanges wouldn’t have cartainly been worried about.
However, then we saw announcement that the PBoC was prohibitting initial coin offerings (ICOs) and shutting down home fiat-to-crypto order book selling.
It looks like the inquiries paved the way for the final clampdown, one that severely influenced cryptocurrency exchanges in the country.
Not a long time ago, Huobi’s founder and CEO Leo Li reported selling capacity followed suit. On November 1, 2017, these figures were just 5% of what they were on Sept. 15, the last day before the close of order-book selling.
Nevertheless, not to be deterred, exchanges such as Huobi have continued to flourish, finding new methods to develop their business.
“Whatever the policy may be, we will comply with the rules and are here to say. The [bitcoin] trend is irresistible. And down the road it is very likely China will lift its ban on cryptocurrency trading.”
Westward and eastward extension
Actually, 2 of China’s largest exchanges at the time, Huobi and OKCoin, already have proposals that again rank within the top 10 in the world by trading sixe – Huobi Pro and OKEx, 2 platforms that now trade cryptocurrencies only.
Also, Zhu claimed that Huobi Group has more than doubled its personnel to over 400 since September, signaling a strong commitment even facing a tightened regulatory landscape.
“The shift to over-the-counter trading is an unexpected pivot to us. We had never anticipated that to be one of our business strategies,” said Zhu.
But until some of the pressure is lifted, Huobi is proceeding with an vigorous extension plan.
During the last few months, the exchange has opened subsidiaries in Hong Kong, Singapore, S. Korea and the USA.
Via partnerships with Japan’s SBI Group and an unnamed partner in S. Korea, Huobi is expecting its new exchanges in those countries to be running by March 2018. And in San Francisco, the company’s new subsidiary is focusing on stidy and fostering blockchain startups, but Huobi has also employed abidance experts there as well, hinting at a possible crypto service launch in the USA too.
“Once we have fully understood the legal issue in the U.S., opening a new exchange remains to be the next phase of the plan,” Zhu said.
While Zhu stated that opening up operations overseas has always been a part of Huobi’s long-term strategy, the PBoC’s actions definitely forced the platform to accelerate its pivot.
Generally, the pivot has been good to Huobi, which is already seeing a more diverse user base, in accordance with Zhu. For example, Huobi Pro currently has about 3 million users and less than 50% of them are from mainland China now.
Fidelity, and revenue, token
However, Huobi is still focused on adding services for its existing consumer base.
Toward that aim, Huobi even launched its own token, HT, which runs on the ethereum blockchain, as a way to achieve user loyalty (and bring in some additional revenue).
Instead of following the ICO model that most startups do, whereby tokens are sold to interested investors, Huobi is giving the tokens away as a present for users that buy service fee packages on its platform.
During 2 weeks, the announcement of the HT tokens resulted in investors rushing to purchase some $300 million as pre-paid service fees, which Huobi Pro is able to gather in advance.
Following the launch of its own token, Huobi Pro declared a new exchange called HADAX, which allows investors to vote with HT on which new cryptocurrency assets they want listed for selling on the platform.
“We can’t evaluate every new cryptocurrency because there are simply too many of them,” Zhu explained. “HADAX gives investors the choice to vote for tokens they believe are worth trading.”
The HADAX platform has collected 8,5 million HT from 104,308 users who have cast a total of 85 million votes for 75 different crypto assets.
And with this, Zhu claimed:
“In the long term, we think crypto-to-crypto trading has more potential than fiat currencies because of the large number of trading choices that can be available.”
The growth of Binance
However, the PBoC’s ruling didn’t only add hurdles, it also seemed to lift up a new crypto exchange which has a considerable connection to the country.
Binance was launched in July 2017 (just 2 months prior to the PBoC’s ruling) by former top executives from OKCoin, Zhao Changpeng and He Yi. At the time, Binance also disclosed that its first round of funding came from 2 Chinese venture capital companies – Funcity and Blackhole.
Nevertheless, as its base was outside of mainland China, Binance was in the correct place at the right time. According to Zhu, when ambiguity prevailed in the domestic market, Chinese investors began withdrawing crypto assets and shifting them onto overseas platforms.
“The timing was perfect for Binance.”
According to CoinMarketCap data, after half of a year after its launch, Binance has now grown into one of the top cryptocurrency exchanges, having seen $2 billion in trading activity in the past 24 hours, .
“Although Huobi already launched Huobi Pro at the time, we didn’t have as many tokens available for trading as Binance did,” Zhu said, adding that the service is now recording more than $1 billion in daily trading capacity.
Although Binance has formerly declared it would restrict the access for customers from inside China, Zhu claimed, “One can always surf the internet ‘scientifically'” – referring to the use of Virtual Private Networks (VPNs), which mask user’s IP addresses.
“If you have assets in an exchange and now you are prohibited from accessing it through a normal process, you definitely will rack your brain to get in there.”