China crypto ban slashes revenues and spurs Huobi to ‘go global’

China's ban on private digital assets will wipe out nearly a third of revenue from Huobi Global, one of the world's largest cryptocurrency exchanges, and force it to seek growth elsewhere, the co-founder said.

Huobi is forced to isolate its customers in China and give up 30 percent of its revenue due to the country's crackdown on cryptocurrencies. To make up for that loss, the exchange plans to seek clients in other financial centers, underscoring the global impact. of China's decision.

“Between the end of September and December 31, we are in the process of shutting down all of our Chinese users. There will be no Chinese users on the platform. . . so our income from [these clients] they're going to go to zero, ”said Du Jun, the 33-year-old co-founder of the exchange, in an interview with the Financial Times.

Huobi is one of the few exchanges that have benefited from the arrival of bitcoin in major markets, as the price of the digital currency has rebounded to a series of all-time highs since March last year. That has turned Huobi, FTX, Coinbase, and a few other startups into billion dollar companies.

Jun emphasized that 70 percent of the company's revenue was already overseas, but said it was accelerating efforts to expand globally and quadruple its global workforce from the current 1,000.

"We feel very comfortable in Asia and we are the leader here, but we need a new emphasis, we have to go global," said the head of the Seychelles-based exchange. It would not provide revenue or profit figures for the business.

Until 2018, China enjoyed overwhelming dominance in the bitcoin markets, hosting most of the mining and trading activity. But in the past four years, a series of crackdowns culminated in Beijing banning all digital assets in October. United States has already surpassed China as the largest mining center.

The changing regulatory wind is forcing Huobi, which is China's largest exchange and enjoyed close ties with political elites, to scale its global operations aggressively, targeting countries and regions such as Russia, Turkey and Latin America for clients. retailers and Europe and the United States for large investors active in professional markets.

In October, $ 211 billion in digital assets changed hands on the platform, down 74% since the ban in May, according to data specialist CryptoCompare.

Jun co-founded the exchange with his business partner, Leon Li, a former Oracle computer engineer, in September 2013, even though Jun initially thought bitcoin had gained in value too quickly to be anything but a scam.

"Leon suggested: what if we don't buy the asset but just do something like a trade?" he said.

After their conversation, they evaluated the two existing crypto exchanges in China, the now gone Mt Gox and BTC China. They estimated that the platforms were making $ 500,000 every month. So they acted on the idea, chose a name that means "fire currency" and attracted traders with zero transaction fees.

The exchange is a private company and says it does not have a "direct relationship" with Hong Kong-listed Huobi Technology, which also runs an asset management arm that offers cryptocurrency-related funds, although it "shares a key shareholder and founder "in Leon Li.

Despite revenue declining sharply in China, Huobi is celebrating its eighth anniversary by giving away "millions" in crypto, sending a yet-to-be-chosen user into the space, and following its FTX peers to woo celebrity endorsements.

Jun, who runs the business from Singapore, wants to internationalize half of his workforce. Still, the exchange has no plans for a global headquarters, preferring its current "decentralized structure", with employees spread across the world.

It is also beefing up its compliance department, as regulatory issues could emerge in the coming years if the platform continues to penetrate major financial centers.

Huobi has more than $ 2 billion in controversial stablecoin stability in custody and offers 55 percent of the returns paid to investors who deposit euros or sterling on the exchange. That could also put the platform in the crosshairs of regulators in the US, UK and Europe, as they tighten their oversight of crypto activities.

A study by the National Bureau of Economic Research said Huobi and Binance served as "a gateway for money laundering and other gray activities" due to the lack of know-your-customer (KYC) checks. A spokesperson for the exchange said that users must undergo "rigorous" KYC processes to trade above a certain amount and be able to convert currencies into digital currencies.