Chinese Authorities Investigate 3 Crypto Projects for Suspected Pyramid Schemes

The Shiyan City Market Supervision Administration in Hubei Province has launched an investigation into three cryptocurrency projects—“Youke Chuang,” “Shiyi Hui,” and “Ronghui Capital”—for suspected operation as pyramid schemes [1]. The projects are accused of using referral-based structures and offering “capital protection” and “high returns” to attract participants, all of which are explicitly prohibited under China’s strict regulations on virtual currency trading [2]. Authorities have issued a public warning, cautioning investors about the risks associated with such platforms and emphasizing the illegality of intermediary services involving virtual currencies [1].

The investigation marks the latest enforcement action in a broader effort to regulate and suppress illicit crypto activities within China. These projects reportedly utilized offshore platforms to conduct their operations, a common tactic to circumvent domestic legal restrictions [1]. Regulatory officials highlighted the financial instability inherent in such schemes, which rely on continuous recruitment rather than the delivery of actual product value [2]. The warning serves as a deterrent to the public, especially those who may be lured by high-return promises in the guise of legitimate investment opportunities [2].

This action aligns with China’s broader regulatory framework, which has intensified since 2021. Previous crackdowns have led to the suspension of similar operations, though the impact on the decentralized finance (DeFi) market has remained limited [2]. The lack of public statements from the leadership of the implicated projects suggests a lack of transparency and cooperation with regulatory inquiries. Authorities continue to emphasize that all virtual currency trading and related services remain illegal under current Chinese law [1].

Analysts note that while local crackdowns reinforce regulatory authority, their influence on the global cryptocurrency market remains minimal [3]. Coincu’s research team suggests that such measures are primarily aimed at domestic compliance rather than broader market disruption [3]. Nonetheless, the enforcement trend is expected to continue, particularly as regulators seek to monitor and control capital flows through decentralized platforms [3]. The challenges of curbing these activities are compounded by the fact that many operations are based outside China’s jurisdiction, making enforcement complex and difficult.

China’s regulatory stance on virtual currencies remains among the most restrictive globally. Despite the absence of officially licensed crypto exchanges or trading platforms, illegal operations persist, often operating through offshore-based services [1]. The government continues to prioritize public awareness campaigns and legal deterrence to prevent participation in fraudulent schemes [1]. As part of this strategy, authorities have repeatedly issued warnings about the risks of engaging in unregulated virtual currency transactions, especially those disguised as investment opportunities [2].

The ongoing investigation in Shiyan underscores the evolving nature of China’s regulatory landscape and the continued vigilance of local authorities in addressing financial misconduct. The case also highlights the broader challenges posed by decentralized and cross-border financial activities, where enforcement is complicated by jurisdictional and technological barriers [3]. As the regulatory environment remains dynamic, participants in the virtual currency space must remain cautious and informed about the legal and financial risks involved.