Chinese crypto traders move to OTC platforms in response to government clampdown

By Staff Reporter

June 1, 2021

Chinese bitcoin traders are evading the recent government clampdown on the cryptocurrencies by moving to Over-the-Counter markets, according to Bloomberg.

The investors are moving to OTC platforms that the Chinese traders have used since the domestic exchanges were shutdown in 2017.

One barometer of local sentiment — the exchange rate between China’s yuan and the stablecoin Tether — fell as much as 4.4% after the government’s warning earlier last month but has since recovered by more than half.

The Chinese investors are using a novel method that would make the government authorities impossible to monitor or crackdown.

They would first post bids and offers on OTC platforms operated by firms including Huobi and OKEx. Once both sides have negotiated a price, the buyer will use a separate platform — operated by their bank or a fintech company to transfer yuan to the seller.

The digital coins, usually held in escrow by the OTC platform until the yuan payment clears, are then transferred to the buyer, in a way in which the government authorities have no way of scrutinizing.

Much of the recent selling pressure in the crypto market — which has wiped out nearly a trillion dollars in market capitalization –has come from Chinese investors. This means the move to the OTC platforms by the Chinese government is a relief for investors.

Chinese investors owned 7% of Bitcoin and accounted for nearly 80% of the trading volume of cryptocurrencies in 2017 when it banned crypto exchanges.

 

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