FTX’s Chinese Customers Remain in Limbo Amid Ongoing Crypto Crackdown

Nearly two years after the dramatic collapse of FTX, Chinese investors who funneled millions of dollars into the now-defunct crypto exchange are still in limbo, caught between an international bankruptcy process and China’s strict anti-crypto enforcement regime. While some global creditors are starting to see a path to recovery, many mainland Chinese customers may never reclaim their assets, due not only to legal complexities, but to Beijing’s enduring crackdown on digital currencies.

Stuck Between Borders and Blockchains

FTX, once one of the largest cryptocurrency exchanges in the world, filed for bankruptcy in November 2022 following revelations of widespread fraud and financial mismanagement. The fallout left more than a million creditors worldwide, many of whom are retail investors, scrambling to recover their holdings.

Among the hardest hit are customers based in mainland China, a country that banned crypto trading in 2021 and has since intensified efforts to suppress digital asset use, particularly involving offshore platforms. Many of these Chinese investors used virtual private networks (VPNs), overseas bank accounts, or proxy registration methods to access FTX and other exchanges, methods that now complicate their legal standing in the bankruptcy process.

FTX’s court-appointed restructuring team, based in the United States and The Bahamas, has limited ability to verify and process claims from Chinese nationals, particularly those that may have circumvented local laws to access the platform.

“It’s a Catch-22,” said a Hong Kong-based crypto lawyer familiar with the situation. “To file a claim, you have to disclose who you are and how you accessed FTX but that could expose you to legal risk in China.”

Crackdown Continues

Despite some signals that China is exploring the use of blockchain technology in state-sponsored projects, such as the digital yuan and cross-border settlement experiments, the ban on private crypto trading remains firmly in place. The country’s central bank has reiterated its position that cryptocurrencies like Bitcoin and Ethereum are speculative and destabilizing, and enforcement actions have been stepped up.

Over the past 18 months, Chinese authorities have reportedly detained or investigated individuals who promoted or traded crypto through offshore exchanges. In several provinces, local police have warned against participating in crypto-related schemes or filing complaints about frozen assets, citing the illegality of the activity itself.

This has had a chilling effect on Chinese FTX customers, many of whom are afraid to publicly assert their claims for fear of retribution. Some have turned to anonymous Telegram channels and private legal forums to explore whether they can reclaim their assets through third-party proxies or offshore intermediaries.

A Tale of Two Recoveries

Globally, FTX’s restructuring has seen cautious progress. Under CEO John J. Ray III, the estate has recovered and liquidated billions in assets, and recently proposed a recovery plan that could return between 35% and 70% of customer holdings, depending on account complexity.

But for Chinese claimants, even those percentages remain out of reach.

“Unless Chinese regulators soften their position or provide an amnesty for affected investors, there’s a real risk that a large portion of FTX’s global customer base will be locked out of any recovery,” said Emily Zhang, a blockchain policy researcher based in Singapore.

Pressure Builds on Regulators

International legal experts are urging regulators in China to issue clearer guidance or carve out exceptions for FTX-related claims. Some argue that the focus should be on investor protection, not punishing users who were caught in the crossfire of an unprecedented global financial collapse.

So far, Chinese regulators have remained silent on the matter.

Meanwhile, Hong Kong’s evolving digital asset framework, which is more crypto-friendly than the mainland, has become a potential lifeline for some Chinese FTX customers. However, legal experts caution that unless the mainland government loosens restrictions, jurisdictional workarounds remain fraught with uncertainty.

As the FTX bankruptcy process grinds forward, the fate of its Chinese customer base remains a glaring blind spot in an otherwise global effort to restore some semblance of justice and restitution. For these users, trapped between a collapsed exchange and a hostile regulatory regime, the promise of digital financial freedom has turned into a bureaucratic and legal nightmare.

Until regulatory clarity emerges, or international pressure mounts, thousands of Chinese investors remain locked out of both their assets and their rights.