On June 4th, Chinese authorities in Guangdong Province closed around four thousand bank accounts linked to cryptocurrency over the counter (OTC) traders and their clients.
A police probe has found many of the frozen accounts are linked to money laundering and other illicit activities, so have duly decided to close them.
Guangdong, the province which holds technology hub Shenzhen and the trading city of Guangzhou holds a big cryptocurrency community, with many involved in the industry affected.
One individual, Sun Xiaoxiao, a former staff member at the crypto wallet Bixin and current OTC desk owner was the first to alert the press about the news via Weibo, claiming thousands will be hit.
Quite why the accounts were all frozen remains unconfirmed by the local authorities but Sun believes that telecommunication frauds, Ponzi schemes and casino businesses are the usual causes that would alert the police.
However, what is more worrying is OTC owners also being embroiled in the crackdown too, despite not committing the illicit activity or even knowing about it.
“Now there are also OTC merchants who had their bank accounts frozen because of questions over the source of the coins they bought. That means, besides ‘dirty money,’ there are also ‘dirty coins‘ circulating,” Sun explained.
Police are now more blockchain knowledgable so have the ability to even track stable tokens like Tether’s USDT which is often used to for ‘high risk’ transfer within the People’s Republic. “police are also catching up on their knowledge of blockchain. More and more criminal cases have started using on-chain analysis to trace blockchain assets,” Sun claimed.
What does this mean for China’s Cryptocurrency community?
The problem is made even more severe considering the usefulness of OTCs in China. Cut off from more traditional methods of cryptocurrency trading which involve fiat currencies for those who do not have an overseas bank account.
Could this be a countrywide crackdown? The potential is there, especially by hitting one of the biggest provinces for cryptocurrency activity. Partner that with the imminent arrival of the Digital Yuan which could well prompt a Bitcoin ban, things are looking more troublesome for the community, especially OTC traders who have had a difficult history with authorities.
Things had been looking up for the cryptocurrency’s standing in the law. After much confusion on whether Bitcoin and other cryptocurrencies were a protected asset, the recent Two Session’s meeting had confirmed the protection of crypto in law.