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Threats from China’s central government appear to have had no impact on domestic demand for cryptocurrency assets.
As Beijing strives to control and stifle the cryptocurrency rise, dealers have used over-the-counter, or OTC, trading platforms to avoid regulatory supervision.
According to a Bloomberg story published on May 31, there has been a notable increase in OTC platform usage since China launched its latest crackdown earlier this month, with China tightening laws forbidding financial institutions and payment businesses from offering cryptocurrency-related services.
While specific volume data is difficult to get since Chinese OTC transactions are peer-to-peer and employ third-party payment systems, the exchange rate between the Chinese yuan and popular stablecoin Tether (USDT) is seen as a crucial barometer of local crypto market mood, with demand for USDT growing during market downturns.
According to Bloomberg, the USDT/CNY plummeted by much as 4.4 percent following the Communist Party crackdown earlier this month, but has already recovered more than half of the loss. As markets continue to consolidate, the rebound signals that peak selling may have occurred.
One of the concerns driving China’s crypto crackdown is capital outflows, which have been seen to spur their latest moves to suppress the industry. Bloomberg speculated that OTC trading may not pose the same capital flight risks associated with typical exchanges, suggesting regulators may not be so heavy-handed in dealing with the sector.
“Because the yuan leg of [OTC] trades takes place entirely within China’s domestic financial system, the risk of large-scale capital outflows is low,” the report noted.
China’s transition to OTC markets parallels the scenario in late 2017, when the government initially prohibited bitcoin exchanges. Despite the crackdown, Chinese traders are still thought to account for a significant portion of global crypto trade today, with researchers estimating China controlled 7% of the world’s Bitcoin and responsible for around 80% of trading before to the 2017 clampdown.
As China strives to meet its carbon neutrality targets, the newest wave of government-imposed restrictions has targeted crypto mining companies. Several businesses, including Huobi and OKEx, have suspended their local mining activities as well as mining services for Chinese consumers.
As a consequence, Bitcoin’s mining difficulty decreased by 16% on Sunday to 21 trillion, the lowest level this year. Mining difficulty estimates the computer power required to generate new BTC.
The network automatically changes the difficulty once every two weeks in response to the degree of competition among miners. The lower it falls, the less competition there is, implying that many people have already turned off their rigs.