Last September, China stunned the cryptocurrency community when it announced a crackdown on ICOs after which it further gave all crypto exchanges in mainland China an ultimatum that required them to wind up their operations by October – seemingly a big blow that would potentially kill the nascent Chinese blockchain and cryptocurrency industry. Chinese bitcoin trading volumes had already dropped significantly since January 2017 and prior to the announcement especially because of the exchange fees Chinese exchanges were forced to raise and the AML protocols they were forced to implement by the authorities at the beginning of 2017. Regardless, the country remained a crucial market for cryptocurrency trading, and more specifically for bitcoin.
Surprisingly, the halting of Chinese crypto-exchange operations did not get in bitcoin’s way as its price skyrocketed just a couple of months later to reach an all-time high of around $20,000. At about the same time, three of China’s largest trading platforms, Huobi, BTCC, and OKCoin, all of which were ordered to shut down their businesses in September, relocated their businesses to Hong Kong with the intent to cater to the rapidly growing demand from investors in the city.
Relocating to friendlier jurisdictions seemed to be the best option for the businesses but they were also considering a number of options that included applying for licenses in Japan and setting up over-the-counter (OTC) shops in Hong Kong.
Enter OTCs
Cryptocurrency enthusiasts in mainland China are still able to trade domestically – the only difference is that instead of relying on exchanges to route their transactions, the transactions are negotiated on recently set up over-the-counter (OTC) trading platforms such as OKEx, Huobi, and OTCBTC. As you may have noticed, these OTC operations are forked the parent companies which were previously China’s, or even the world’s, largest crypto-exchange platforms.
Is There a Catch?
Of course, there is! Chinese crypto-junkies who still want to partake in trading activities have to put up with significantly inflated prices. For instance, when compared to traditional cryptocurrency exchanges, the prices on OTC platforms are higher by 10 to 20 percent. Case in point, when bitcoin was trading at $11,730 on Coinbase, the lowest bitcoin price on the Huobi OTC platform was $13,085. However, the government regulations are culpable for the premium that Chinese investors are forced to pay as a result of the limited supply of OTC coin. Still, wittier traders have taken advantage of the arbitrage opportunity to buy cryptocurrencies at cheaper prices from foreign exchanges after which they sell them back on the domestic OTC platforms at higher prices. There are risks like price volatility and slow transaction times involved but the traders are willing to put up with this.
On the OTC platforms, cryptocurrency trading is as easy as buying goods on eBay. All a buyer needs to do is to pick a currency they want to buy and then offers from multiple sellers appear. Buyers are allowed to link their bank accounts or use mobile payment services that are available in China.
