China's Bitcoin trading volume rises! Cryptocurrency ban has not killed the market, "over-the-counter transactions" surge by more than 200%

FX168 Financial News Agency (Asia Pacific) reported that a research report released by blockchain data platform Chainalysis on Tuesday (September 17) showed that despite China's regulators' strict control over market activities of Bitcoin and cryptocurrencies, investors are looking for alternatives to depressed stocks amid an economic slowdown, and China's cryptocurrency trading activities are still rising, with over-the-counter trading volume increasing by more than 200% compared with the same period in 2021.

Nikkei Asia quoted the report as saying that in the second quarter of 2024, China's Bitcoin and cryptocurrency "over-the-counter" (OTC) market trading volume increased by more than 2 times from the same period in 2021 to US$23.7 billion. The so-called "over-the-counter trading" means that cryptocurrency buyers and sellers contact each other directly through a usually hidden network.

Chainalysis analysts explained: "After China shut down access to major cryptocurrency exchanges in 2021, users began looking elsewhere, turning to over-the-counter trading platforms and peer-to-peer (P2P) trading networks."

For years, Chinese regulators have taken a strict restrictive approach to cryptocurrencies. In 2017, authorities including the People's Bank of China (China's central bank) banned private token offerings (ICOs) and exchanges that trade Bitcoin and cryptocurrencies. In 2021, they further cracked down on mining, trading and related services, including issuing a statement that "services provided by foreign cryptocurrency exchanges to domestic residents are also considered illegal financial activities."

In contrast, Hong Kong, which is considered an offshore jurisdiction, has taken a different approach, regulating such transactions through licensed intermediaries such as exchanges and cryptocurrency-based exchange-traded funds (ETFs).

Despite this, Chainalysis data shows that cryptocurrency activity on the mainland has not been stifled.

Eric Jardine, head of cybercrime research at Chainalysis, said the data don’t fully reflect the size of China’s OTC market because buyers and sellers often connect through channels on social media groups, and transactions often flow through networks nested in service providers who may not understand the true scope of the traffic.

Even under the restrictions, mainland users can still access OTC markets offered by global exchanges, according to people familiar with the matter. The people declined to be named because of the sensitivity of the topic.

The platforms require buyers to provide personal information and require buyers to deposit money to ensure the transaction is completed, one of the people said.

Chainalysis found that from January 2023 to June 2024, when China’s Shanghai Composite Index fell, inflows into the OTC market tended to increase. The index fell 4.78% during this period.

The report noted that the same phenomenon was seen when the A-shares of China's state-owned real estate developer Vanke fell, which is a representative of the troubled Chinese real estate industry. Vanke reported a net loss of 9.8 billion yuan, or about $1.4 billion, in the first half of 2024, and core sales fell 37.6% year-on-year to 127.3 billion yuan.