Chinese traders use OTC desks to bypass regulatory hurdles: Report

Over-the-counter activity has picked up since the Communist Party reiterated its ban on crypto services on May 18.

Chinese investors remain active in the crypto market, bypassing regulatory oversight by taking bets on domestic and foreign over-the-counter (OTC) desks.

According to a Bloomberg report published Monday, activity on OTC desks has picked up since the Communist Party reiterated its long-held ban on crypto services on May 18.

The initial response to the China news was panic selling, with bitcoin (BTC, +3.21%) hitting a low of $30,000 the following day. Sentiment has since recovered, as evidenced by the bounce in the yuan-stablecoin tether (USDT, -0.02%) (CNY/USDT) exchange rate.

According crypto data platform Feixiaohao, the rate has recouped almost half the 5% drop seen during the knee-jerk price slide. Panic selling usually boosts demand for the stablecoin tether, driving CNY/USDT lower.

The recovery signals the worst of the sell-off may be over and points to a rise in yuan-denominated trades, which are mostly booked via domestic OTC desks powered by Huobi and OKEx.

These trades happen in two stages, as Bloomberg noted. The first involves matching orders on OTC desks, and the second involves payment of yuan to the seller through a different platform or a fintech company like Ant Group.

As a result, authorities struggle to monitor the transactions. However, the risk of large-scale capital outflows is quite low as the yuan payment takes place within China’s domestic financial system.

Even so, the government is taking steps to rein in speculation. For instance, the Beijing police recently distributed printed notes warning of risks associated with cryptocurrency trading, the Bloomberg report said.

China first barred financial institutions from handling bitcoin in 2013 and then declared initial coin offerings illegal in 2017. That led to a sharp decline in bitcoin’s price.