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

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China’s ban on private digital assets will wipe out almost a third of revenues for Huobi Global, one of the world’s largest cryptocurrency exchanges, and force it to look elsewhere for growth, the co-founder said.

Huobi is being forced to cut off its clients in China and give up 30 per cent of its revenues because of the country’s crackdown on cryptocurrencies. To make up for that loss the exchange plans to hunt for customers in other financial centres, underlining the global impact of China’s decision.

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

Huobi is one of the handful of exchanges that have benefited from bitcoin hitting mainstream markets as the price of the digital coin has rallied to a series of all-time highs since March last year. That has turned Huobi, FTX, Coinbase and a few other start-ups into billion-dollar companies.

Jun emphasised that 70 per cent of the company’s revenue was already overseas but said it was accelerating efforts to expand globally and quadrupling its global headcount from the current 1,000.

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

Until 2018, China enjoyed an overwhelming dominance in bitcoin markets, as it was home to the majority of mining and trading activity. But in the past four years, a series of crackdowns culminated in Beijing’s banning all digital assets this October. The US has already surpassed China as the largest mining hub.

The shifting regulatory wind is forcing Huobi, which is China’s largest exchange and enjoyed close links to political elites, to scale up its global operations aggressively, targeting nations and regions such as Russia, Turkey and Latin America for retail clients and Europe and the US for large investors active in professional markets.

In October, $211bn worth of digital assets changed hands on the platform, down 74 per cent since the ban in May, according to data specialist CryptoCompare.

Leon Li, co-founder of Huobi, who suggested the idea of the exchange to Jun © Simon Song/South China Morning Post/Getty

Jun co-founded the exchange with his business partner, Leon Li, a former Oracle computer engineer, in September 2013, despite Jun at first thinking that bitcoin had gained in value too quickly to be anything but a scam.

“Leon suggested: how about we don’t buy the asset but we just do something like an exchange?” he said.

After their conversation, they evaluated the two existing crypto exchanges in China, the now-defunct Mt Gox and BTC China. They estimated that the platforms were making $500,000 each month. So they acted on the idea, choosing a name that means “fire coin” and luring in traders with zero transaction fees.

The exchange is a private company and says it has no “direct relationship” with Hong Kong-listed Huobi Technology, which also runs an asset management arm offering crypto-related funds, although “it shares a key shareholder and founder” in Leon Li.

Despite revenues being slashed in China, Huobi is celebrating its eighth anniversary by giving away “millions” in crypto, sending a yet to be chosen user to space and following peer FTX in courting celebrity endorsements.

Jun, who runs the business from Singapore, wants to make half of its workforce international. Still, the exchange has no plans for a global headquarters, preferring its current “decentralised structure”, with employees distributed around the world.

It is also beefing up its compliance department as regulatory issues could surface in the coming years if the platform continues to venture into the main financial hubs.

Huobi has more than $2bn worth of the controversial stablecoin tether under custody and is offering 55 per cent of returns paid in tether for investors who deposit euro or sterling on the exchange. That could also put the platform in the sights of regulators in the US, the UK and Europe, as they tighten their oversight of crypto activities.

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

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