Millionaires in China are turning to over-the-counter services to trade and buy Bitcoin and other cryptocurrencies even as the local government says it would crackdown on the sector, as per a report on business outlet Bloomberg today.
Rising exchange rate
Officials in the country said earlier this month they would hunt down and end mining activity in the country. “[We will] crackdown on Bitcoin mining and trading behavior,” said Vice Premier Liu He and the State Council, citing climate concerns.
Prices fell over 40% across the crypto market after those comments. But while sellers are cutting back on risk, some others are buying more cryptocurrencies via OTC platforms instead.
OTC platforms are simply an exchange platform for assets not listed on a formal exchange or traded via a private book. Such platforms allow wealthy traders or investors (these usually have higher criteria for users) to invest in markets more privately.
And business is booming. The report said the rising exchange rate between China’s yuan and the stablecoin Tether—which fell as much as 4.4% earlier this month—has increased to half of the pre-crackdown value, suggesting OTC platforms are doing big business.
OKEx, one of China’s largest exchanges, said that China is going to be more strict on exchanges and mining operations, but people can still use and hold cryptocurrencies in general, including Chinese nationals. https://t.co/PAxK2gs4vp
— Wu Blockchain (@WuBlockchain) May 31, 2021
OTC bets for crypto
Here’s how they are carried out: Firms like Huobi and OKEx, two popular crypto exchanges that run their OTC platform in China, allow traders to post buy and sell offers, with the counterparty being the exchange themselves.
After a price is agreed on (this can be lower or higher than the global market price), the buyer (or seller) uses a different payment platform to send yuan, which is then locked up in an ‘escrow’ account until cleared. The crypto is then transferred to the buyer’s account and the trade is complete.
This allows users to trade in a private manner. Regulators are said to currently have no way to pinpoint which transaction on a local payment platform pertains to which on a crypto exchange.
However, that’s not to say all is safe. Earlier this month, Chinese regulators notified banks and payments firms about their requirement to identify and block ‘suspicious’ transactions, such as those linked to money laundering or those linked to crypto transactions.
On the bright side, however, ‘individual’ trading has not been banned outright by the Chinese government so far.