(Bloomberg) — Hours before China issued its sweeping ultimatum against cryptocurrency trading, the industry’s last remaining giant player had already decided to call it quits.Huobi founders and backers voted unanimously at their shareholder meeting Sept. 24 that the crypto exchange, China’s largest, should leave its home market after years of growing government scrutiny. Later that day, Chinese regulators declared that all crypto transactions and services were banned in the country.Huobi ceased account registration for new users in mainland China almost immediately and announced two days later that it would remove existing Chinese users by the end of this year. The moves — which were quickly followed by a slew of smaller crypto outfits — are the strongest testament yet to Beijing’s determination to ban crypto, despite years of attempted crackdowns with mixed effects.“In the past, we had been communicating with regulators to see if there are still ways to legally operate in China. But this time, there’s no room for discussion.” co-founder Du Jun said in an interview with Bloomberg. “Our strategy is all about going global now.”Beijing’s latest crypto ban eliminates false hope for the likes of Huobi to stay put in China by tiptoeing around the red lines. One of the last China-founded crypto platforms that hewed closely to its home country, Huobi has over the years developed rare, cozy government ties that rivals could only envy. But the exchange giant has been preparing for life without China since the start of this year, said Du. While investors like Sequoia China and ZhenFund had nodded to the original plan to shut all Chinese user accounts by June of next year, he said, the surprise official statement accelerated that effort.“We are actively sticking to the government policy so we want to solve the matter this year,” Du said, adding that the exchange will keep regulators updated on progress.
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Huobi is now focused on expansion in the rest of the world, following peers from top exchange Binance to mining giant Bitmain that have in past years or months shifted operations out of China. In recent months, Huobi has gone on a hiring spree in places like Turkey and Brazil, aiming for a global headcount of 3,000 this year. It has over 10 million users globally, with Southeast Asia, Europe and the Middle East as its biggest markets after China.Its Hong Kong-listed arm has launched four crypto-related funds for institutional investors. And the firm is among some 170 crypto businesses that have applied to provide digital payment token services in Singapore.Huobi was founded in 2013 by Leon Li, a former Oracle Corp. coder, and Du, the marketing chief. The pair quickly grew the Beijing startup to become the world’s most active Bitcoin exchange by luring Chinese traders with zero transaction fees. In 2017, Chinese regulators told local exchanges to stop hosting trades between fiat money and cryptos, the first of a steady stream of pronouncements against what they deem a threat to the country’s financial stability. That same year, Du left Huobi to create his own crypto venture fund, but returned at the end of last year to lead the global expansion.After the 2017 rule was enacted, Huobi set up an entity in Singapore to run its main exchange business — which is where Du is based now. Huobi Global still offers Chinese users services including over-the-counter trading and crypto-to-crypto transactions, without handling the yuan directly. But senior management including Li stayed in Beijing, currying favor with local officials and central bankers alike by supporting China’s bid to develop blockchain technology.
Read more: The Crypto Mogul Who’s Got the Ear of China’s Central Bank
Huobi’s struggles highlight the risk crypto businesses face when dealing with China. Rules have been murky and workarounds are common — though that may be changing. The Sept. 24 rules say crypto transactions in China are banned, including services provided by offshore exchanges. They forbid overseas platforms to hire locally for roles like marketing, tech and payment, closing a longstanding loophole that benefited the likes of Huobi.
Overall, Huobi Group — the parent company that also includes blockchain consultancy and asset management services — now generates nearly 70% of its revenue from outside China, Du said. Of the group’s 2,300 employees, about 700 are involved with exchange operations, he said.
A Huobi spokesperson declined to comment on how many mainland China users the exchange has, adding they are mostly retail users who generate fewer transactions than institutions. Retail traders from China accounted for 20% of Huobi’s trading volume, management told Bloomberg in an interview published last year.
“Huobi has long been a top global exchange and is no stranger to years of tightening Chinese crypto regulations,” said Jehan Chu, co-founder and managing partner of Hong Kong-based crypto investment firm Kenetic Capital. “With a massive balance sheet and strong international customer base I believe they will adapt and double down in more welcoming jurisdictions outside China.”
Even so, Huobi users are looking for a second act. In a Chinese-language Telegram group with nearly 25,000 members, some said they’ll try and get a foreign passport to evade Beijing’s ban, while others encouraged fellow traders to move their crypto assets to wallet apps as soon as possible.
“Where should Huobi refugees go?” one wrote.
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