Last month, there were reports of thousands of cryptocurrency over-the-counter (OTC) merchants and their clients getting affected as China froze their bank accounts to prevent illegal activity. Molly Mo, who runs marketing at a digital asset management platform Hashkey Hub said,
“The crackdown on OTC in China since last month is by far the most strict and widely affected one, is caused by USDT is widely used for money laundering, the action led by the PBOC, ministry of public security, central administration of customs, CBIRC, union pay….”
Poeple get their bank cards got frozen because buy/sell crypto lately in China is by far the most strict, and most widely affected. I personal know 10people already got their bank cards frozen, which none of them get freezed before, and my bank card also got freezed.
— Molly (@molllliy) June 11, 2020
Bitcoin is also trading at lower prices at the OTC desks, at a difference of $50 to $65 than the spot exchanges.
Last week she shared on Twitter that “most” of the desks have been affected by this move with the users of a reportedly popular exchange, which has over 80% of the OTC market in China also getting their cards frozen.
Moreover, there have been reports of OTC brokers getting arrested.
The move has significant implications because OTC desks are the only fiat on-and off-ramps for China-based crypto users, especially after China's central bank banned ICOs and cut off exchange’s direct channels for fiat deposit and withdrawals in September 2017.
In June, Sun Xiaoxiao, who ran an OTC desk and was formerly with Chinese crypto wallet startup Bixin, said Chinese police are investigating on the grounds of ‘dirty money,’ with causes including Ponzi schemes, casino businesses, and telecom frauds.
Moreover, the police have been catching up on their blockchain knowledge.
Earlier this month, Chinese crypto media channel 8BTC reported China’s Merchant Bank (CMB) saying they will “actively freeze” debit and credit cards based on “their own judgment” and assessment of risk.
Last month, the China Times reported that the Bank of China, the Agricultural Bank of China, the China Construction Bank, and the Industrial and Commercial Bank of China had been freezing accounts involved in “illegal activities.” They also said they wouldn’t freeze legal crypto transactions, but some people still claimed the same.
Last week, reports came that Zhao Dong, head of the OTC and crypto lending platform RenrenBit, was taken into a police station. Zhao also owns a small percentage, apparently less than 5%, of crypto exchange Bitfinex.
RenrenBit issued a statement in which it said Zhao offered to cooperate with the investigation, and it was unrelated to the company but his side-business.
China is “both world's largest and most idiosyncratic crypto market,” according to Matthew Graham, CEO of Sino Global Capital.
While the Chinese government is yet again cracking down on crypto as the Supreme court and police believe digital assets are widely used in drug dealings, the stock market of the country is thriving as it hit a 1.5 trillion RMB ($213 billion), a five year high.
🇨🇳 #China Stokes a Stock-Market Mania, Risking Repeat of 2015 Bubble – Bloomberg
*The CSI 300 Index jumped as much as 4.2% on Monday morning, the most since February 2019.
*Link: https://t.co/DN1hEqwAWj pic.twitter.com/7CO30GlK7i
— Christophe Barraud🛢 (@C_Barraud) July 6, 2020
According to a Chinese publication, multiple reforms and increased foreign capital helped pave the way for this bull market.
But according to Dovey Wan, funding partner at Primitive Crypto, Chinese A shares rallies so hard is bad news for bitcoin. She said,
“This will further suck in retail capital into equity market (both are 80% or more retail in China), so makes the crypto market even more dull.”
On the other hand, the People’s Bank of China imposed a program in Hebei province to keep large transactions in check that would require retail (from 100,000 yuan to 300,000 yuan) and business clients (exceeding 500,000 yuan ($71,000)) to pre-report large deposits and withdrawals amidst the heightened concerns over the state of its financial system.