By Shelly Melancon (Switzerland)
Threats from Chinese authorities seem to have little or no effect on their citizen’s demand for digital assets. Despite Beijing’s efforts in monitoring and inhibiting the digital currency revolution, crypto traders have resorted to over-the-counter (OTC) trading desks to avoid regulatory oversight.
OTC Platforms’ Use Rise
Per a press release by Bloomberg this morning, there has been a massive rise in the use of OTC platforms ever since government authorities released stricter measures on crypto-related transactions by payment companies and financial institutions earlier this month. Even though exact figures can’t be ascertained, the massive rise in the demand for popular stable coin USDT (Tether) and a surge in the exchange rate between the yuan and USDT during this period indicates the massive surge in the use of OTC trading desks.
China OTC transaction figures aren’t exact because they are peer-to-peer and involves using third-party networks. A Bloomberg research shows that USDT/CNY declined by over 4% following the crackdown news, but it has rallied by over 50% since then. This rally indicates that selling might no longer be at its peak, as evidenced by gradual market consolidation.
The Suggested Reason Behind the New Clampdown
The rise in capital outflows is seen to be the main reason behind the Chinese authorities’ latest moves in suppressing the crypto industry. However, Bloomberg suggests that the oversight on OTC trade platforms may not be so strict because the sector can’t cause huge capital outflows similar to that of the typical exchanges.
The report remarked that “there is low risk associated with significant capital outflows since yuan OTC trade operations are completely within the jurisdiction of China’s local financial system.” This new preference for OTC markets by the Chinese is similar to what happened in late 2017 when the authorities banned crypto exchanges for the first time. Regardless of the crackdown, Chinese traders are still a force to reckon with in the crypto trades that take place across the world today.
Crypto experts suggest that over 7% of the bitcoin owners worldwide are Chinese and more than 81% of crypto trading are from the Chinese before the crackdown four years ago. These new strict measures by the Chinese government are aimed at crypto traders and crypto mining companies as the country seeks to achieve its carbon neutrality objectives. These measures have seen most crypto mining companies shut down their operations. Popular ones such as OKEx and Huobi have restricted their services to Chinese clients and stopped local crypto mining activities.
Bitcoin Mining Difficulty Decline to A New Low
It is no wonder that there was a 15% decline in Bitcoin mining difficulty as of yesterday – a figure that represents the most significant mining difficulty this year. The mining difficulty is an estimate of the computing power necessary to generate one new bitcoin.
The network automates the difficulty adjustment once every two weeks, depending on the level of competition among miners. The lower the level of this decline, the lesser the competition among miners, which is an indication most miners have shut down their mining operations.
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