Is the mainland crypto winter returning? Reports suggest Hangzhou conducts large-scale screening of crypto practitioners

Author: Liu Zhengyao

Introduction

Yesterday, Attorney Liu just published an article titled "Is the 'Distant Sea Fishing' Crackdown on Crypto Coming to an End?", discussing legal risks faced by individuals in China's cryptocurrency industry. This morning, I came across a piece of news: Hangzhou—one of China’s most active hubs for web3 startups—has seen local police begin investigating crypto practitioners within its jurisdiction starting from June 8.

I. What Are the Police Investigating?

According to a blog post by online content creator (@mirrorzk), crypto practitioners in Hangzhou have been verbally summoned by police to bring their laptops to local police stations for data collection, information recovery, and taking statements. Those being investigated reported that authorities used specialized equipment to recover chat logs from previously uninstalled apps such as Telegram and Slack.

Based on the blogger's analysis, the following groups are currently under particular scrutiny in Hangzhou:

(1) Individuals or entities involved in token issuance or project fundraising;

(2) Companies or individuals engaged in overseas fundraising, fund repatriation, cross-border transfers, or with records of over-the-counter (OTC) USDT transactions;

The blogger suggests this round of investigations in Hangzhou may be a precursor to nationwide enforcement actions. Given Hangzhou’s leading position in blockchain-related law enforcement technology, its concentration of web3 talent (second only to Shenzhen, in Attorney Liu’s view), and the high volume of cross-border virtual currency transactions across Zhejiang province, it is logical that Hangzhou would become the first city to conduct a large-scale sweep of China’s crypto community.

II. Legal Perspective: Why Are Crypto Practitioners Being Investigated?

From a web3 legal standpoint, I’d like to take a cautious stance initially—there is currently no strong evidence suggesting mainland China will launch another major crackdown on the crypto sector beyond the existing "Notice of September 24". However, if the Hangzhou incident is confirmed true, several factors must be considered:

(1) There may be a significant crypto team in Hangzhou involved in criminal cases, prompting broader screening of local crypto practitioners to assess potential criminal involvement;

(2) Investigations could stem from leads provided by financial regulators such as the State Administration of Foreign Exchange (SAFE) or the People's Bank of China (PBOC), aimed at laying groundwork for future regulatory oversight of cryptocurrencies in the financial sector;

(3) Tax authorities may also be involved, given that cryptocurrencies are inherently effective tools for tax avoidance. If China plans to impose taxation on crypto holdings in the future, pilot cities like Hangzhou might serve as testing grounds—"crossing the river by feeling the stones"—to establish a basis for future crypto asset taxation policies.

It is particularly important to note that under Chinese law, citizens’ private property cannot be searched or seized without due legal process. While public security organs do have legal grounds to verbally summon individuals for cooperation in investigations, any technical recovery of data from personal devices such as laptops requires formal procedures—for example, issuing a Seizure Decision Notice. Such actions cannot be justified by verbal request alone.

III. Is Another Crypto Winter Approaching in Mainland China?

Since the joint release of the Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation (hereinafter referred to as the "September 24 Notice") by ten national agencies on September 15, 2021, almost all business activities related to virtual currencies have been banned in China.

Converting virtual currencies to fiat, exchanging one crypto for another, acting as a central counterparty in trading, providing information intermediation or pricing services for crypto trades, conducting token offerings, and offering crypto derivatives—all are deemed illegal financial activities. These are strictly prohibited and subject to termination. Where such acts constitute crimes, criminal liabilities will be pursued.

Moreover, no domestic or foreign virtual currency exchanges are allowed to operate within mainland China. Any individual or entity providing services (marketing, payment settlement, technical support, etc.) to offshore exchanges may face legal consequences. Financial institutions and non-bank payment providers—including WeChat Pay and Alipay—are forbidden from facilitating virtual currency transactions. Entities registered in mainland China cannot include terms such as “virtual currency,” “virtual assets,” “cryptocurrency,” or “crypto assets” in their names. Combined with the September 3 "Notice on Rectifying Cryptocurrency Mining Activities" that banned mining, these regulations have effectively severed mainland China from virtually all crypto-related operations.

However, the September 24 Notice also states: “Where any legal person, unincorporated organization, or natural person invests in virtual currencies and related derivatives in violation of public order and good customs, the relevant civil legal act shall be invalid, and any losses incurred thereby shall be borne by the investor.” Many legal professionals interpret this clause as indicating that while China does not explicitly ban investment in virtual currencies, it offers no legal protection either. Attorney Liu has previously held this view, reasoning that where the law does not prohibit something, it is permissible. As long as there is no explicit prohibition against citizens investing in cryptocurrencies, one cannot claim that buying or selling crypto in China is illegal.

Yet again, legal theory often diverges from practice. In reality, we’ve seen countless cases where individuals—whose sole activity was buying and selling cryptocurrency and who clearly lacked criminal intent—were convicted simply because they received illicit funds. Therefore, to completely avoid legal risks associated with crypto, I now advise mainland citizens against speculating in or trading virtual currencies altogether.

Returning to the Hangzhou situation, it certainly cannot be ruled out that this marks the beginning of a nationwide anti-crypto campaign. Alternatively, it may simply reflect isolated legal incidents within Hangzhou’s crypto scene that won’t escalate into broader national action. At this stage, it remains uncertain whether mainland China’s crypto industry is entering another winter.

IV. Final Thoughts

The Monetary Authority of Singapore (MAS) released policy guidance on May 30, introducing the strictest web3 regulations in Singapore’s history, effective June 30. Meanwhile, mainland China continues judicial crackdowns on crypto-related businesses based on the September 24 Notice. Hong Kong claims openness toward web3 but proceeds hesitantly, showing both interest and restraint. U.S. crypto policy isn’t exactly friendly either...

No one can predict how cryptocurrencies—characterized by decentralization and anonymity—will ultimately evolve. Bitcoin originally gained traction not by appealing to centralized institutions or seeking approval, but by building technological consensus accepted by ordinary people, knowledgeable or not, until even highly centralized organizations (such as multinational corporations and government bodies) had no choice but to acknowledge it. True believers in crypto therefore need not concern themselves with what centralized institutions do; instead, they should focus on advancing the real value of cryptocurrency itself.