As Beijing attempts to regulate and suppress the cryptocurrency boom, traders are avoiding regulatory oversight by using over-the-counter, or OTC trading desks.
According to May 31st report published by Bloomberg, The use of the OTC platform has increased significantly since then China announced its latest action Earlier this month, China with stringent restrictions barred financial institutions and payment companies from providing cryptocurrency-related services.
While accurate volume data is difficult to ascertain because Chinese OTC transactions are peer-to-peer and use third-party payment platforms, exchange rates between China’s yuan and the popular fixed currency Tether (USDT are key gauges of local crypto market sentiment Is seen as – with increasing demand for USDT during market downturn.
According to Bloomberg, USDT/CNY fell by up to 4.4% earlier this month following the Communist Party action, but has since recovered more than half of the losses. Recovery suggests that peak selling may pass as the market begins to strengthen.
One of the concerns driving China’s cryptocurrency is the outflow of capital, which has been seen to inspire its latest steps to suppress the industry. Bloomberg speculates that OTC trading may not bear the same capital flight risk associated with specific exchanges, suggesting that regulators may not be so heavy in dealing with the sector.
“Because yuan foot yuan [OTC] Trade takes place entirely within China’s domestic financial system, the risk of large-scale capital outflows is low, ”the report noted.
China’s shift to OTC markets reflects the situation at the end of 2017 when states First cryptocurrency exchanges banned. Despite Chinese merchants still believed to represent a large portion of global crypto trading today, analysts estimate that China owns 7% of the world’s bitcoins and about 80 before the 2017 close % Is responsible for business.
The latest wave of government-imposed sanctions has also been seen. Crypto mining operations Is targeted as China attempts to align its carbon neutrality goals. Several companies, including Huobi and OKX, have halted their local mining operations and mining services for Chinese customers.
As a result, bitcoin’s mining difficulty fell 16% to 21 trillion on Sunday – its steepest drop this year. The mining difficulty provides an estimate of the computing power required to produce the new BTC.
The network automatically adjusts to the difficulty around a fortnight, responding to the level of competition between miners. The lower it falls, the less competition there is – suggesting that many have already discontinued their rig.