Despite the official cryptocurrency ban in China, underground crypto trading has surged, with reports indicating that the volume reached $75.4 billion in just nine months. A study by Chainalysis revealed that over-the-counter (OTC) brokers facilitate large-scale inflows of cryptocurrency, operating discreetly outside of government regulation.
Key Findings:
- From October 2023 to June 2024, China’s underground crypto market inflows consistently exceeded $20 billion per quarter.
- The surge in underground crypto trading coincides with the underperformance of China’s equity and property markets, prompting investors to seek alternatives.
- OTC services allow Chinese investors to swap their yuan for digital tokens without using public crypto exchanges, circumventing the ban on trading and mining imposed in 2021.
Market Drivers:
- The Chinese economy is grappling with poor performance in traditional sectors, pushing investors towards cryptocurrencies as a potential store of value.
- According to Eric Jardine, cybercrimes research lead at Chainalysis, the loose enforcement of China’s crypto ban has contributed to the underground market’s growth.
- The study also highlights that 55% of the value OTC brokers receive in China comes from large transfers exceeding $1 million, suggesting participation by wealthy individuals and institutions.
Contrast with Hong Kong:
While mainland China maintains a strict stance on cryptocurrency, Hong Kong has taken a different approach. In late 2022, it will legalize digital asset trading and aim to become a crypto hub.
Future Outlook:
The underground crypto market is expected to grow as China continues to face economic challenges. Jardine predicts that unless China revises its regulatory stance, demand for OTC services will persist, offering investors a way to engage in cryptocurrency trading despite the ban.
Key Personalities:
China remains home to influential figures in the global crypto industry, such as Changpeng Zhao, the founder of Binance, a Chinese-Canadian citizen. Despite the regulatory hurdles, the country’s underground crypto ecosystem thrives.
