China’s Bitcoin Trading Activity Increases Despite Government’s Plan to Ban OTC Markets

Journalist:
September 19, 2017

Despite the plans of the Chinese government and local financial regulators to extend the nationwide bitcoin exchange ban to over-the-counter (OTC) markets, bitcoin trading activity is continuously increasing in the region.

Previously, CCN reported that Chinese financial regulators will likely impose a nationwide ban on OTC and peer-to-peer (P2P) trading platforms in the upcoming weeks. Western news publications including Wall Street Journal further reported that strict regulations on bitcoin exchanges and OTC markets may extend to mining operators such as Bitmain.

Whether Chinese authorities will simply declare the trading of bitcoin through any means illegal or blacklist the domains of OTC markets and P2P trading platforms remains unclear. Similar to the ban imposed on Google and social media platforms such as Facebook and YouTube, the Chinese government could ban domains through its firewall and effectively regulate P2P trading, since the usage of VPN is prohibited in China.

But, regardless of the increasing regulation and restriction on bitcoin trading and usage imposed by the Chinese government, trading activity is increasing at a rapid rate. OTC and P2P bitcoin trading data providers such as Coin Dance have shown that LocalBitcoins weekly trading volumes have surged significantly after the finalization of nationwide bitcoin exchange ban. Throughout the past few days, weekly trading volumes on LocalBitcoins increased, with the platform recording a $74 million trading volume this week.

According to Bitcoin.com, Asian OTC bitcoin trading platforms such as Richfund.pe have also been handling a significant portion of CNY/BTC trades over the past week. In a report, Bitcoin.com further noted that analysts with insider knowledge suspect regional OTC service providers such as Richfund of processing substantially more bitcoin trades in comparison to OTC trading platforms in China.

“We provide 1000-5000 BTC large OTC services in China, Korea, Cambodia, Hong Kong and Taiwan,” told Bitcoin.com.

Already, a large number of traders have moved from the Chinese bitcoin exchange market to the Japanese cryptocurrency market. The decision of the Chinese government to isolate the country from the global bitcoin trading market will only lead to existing traders leaving to nearby markets such as Japan, Hong Kong and South Korea. Traders that struggle to deal with Know Your Customer (KYC) and Anti-Money Laundering (AML) policies in Japan and South Korea will simply utilize regional OTC platforms like Richfund.

Last year, when the Chinese government and its central bank the People’s Bank of China started to effectively regulate its local bitcoin exchange market and businesses, analysts explained that the Chinese government hoped to prevent traders from moving toward unregulated OTC and P2P markets because they are significantly harder to regulate due to the lack of KYC and AML systems.

However, the crackdown on local bitcoin exchanges that have complied to the requests of the Chinese government and implemented robust KYC and AML systems will further increase the demand for OTC and P2P trading platforms, as analysts such as bitcoin investor and Adamant Research editor in chief Tuur Demeester noted.

Most Chinese exchanges and bitcoin service providers still remain optimistic that the Chinese government is strictly regulating the bitcoin market with the vision of introducing a licensing program for bitcoin trading platforms in the future, to establish a more stable and regulated bitcoin exchange market. Still, the government’s plan to ban OTC and P2P markets will only increase the demand toward underground bitcoin markets from the general public, which will not be beneficial for both the government and the Chinese bitcoin industry.

Featured image from Shutterstock.

Joseph Young @iamjosephyoung

Hong Kong-Based Finance Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the fintech space since 2012.