Thousands of over-the-counter cryptocurrency traders and their customers could see their bank accounts frozen for an investigation by the Chinese police into crypto and fiat assets involved in illegal activities.
A large survey whose details have not been released
Some Chinese cryptocurrency buyers and sellers and OTC market makers like Bitcoin Pro they have already found their accounts frozen because the related transactions may have been contaminated by money laundering activities involving cryptocurrencies.
Sun Xiaoxiao, a former collaborator of the Chinese cryptocurrency startup Bixin who now runs an OTC desk, wrote in a Weibo post last week that his bank accounts had been frozen and it was not a single case.
The action, taken by police in the Chinese province of Guangdong, has a potential impact on "several thousand people," he said. Affected cryptocurrency users are not necessarily accused of any wrongdoing, and the incident raises the wider question of the amount of crypto money and assets that has been contaminated with illegal activity.
It is troubling because OTC desks are the only on and off-currency ramps in fiat currency for China-based cryptocurrency users who do not have bank accounts abroad.
Money laundering via cryptocurrencies in China
It is not clear at this stage which precise case the Chinese police are investigating, which is causing widespread freezing. But Sun specified in a Friday follow-up post that the causes include telecommunication fraud, Ponzi schemes and casino companies.
In the past, bank account freezes have occurred as a result of attempts to convert cryptocurrencies into Chinese yuan which were not known for certain if they were "clean". In this case, the police may suspect that the funds are related to money laundering activities.
“There are now also OTC traders who have their bank accounts frozen because of questions about the source of the coins they bought. This means that, in addition to "dirty money", "dirty coins" also circulate, Sun wrote.
There is a growing trend to use blockchain networks to transfer high risk capital to China, he added. While bitcoin was previously the first choice for such transactions, the U.S. dollar-linked stablecoin tether (USDT) has now become the most popular choice.
Since September 2017, when the Chinese central bank issued a ban on initial coin offerings and cut the direct channels of Chinese exchanges for fiat currency deposits and withdrawals, peer-to-peer transactions through OTC market makers remain the only way for people in China to buy crypto assets for yuan or exchange crypto coins for cash.
For those whose accounts have been frozen, Sun suggested contacting the relevant law enforcement authority to prove that I am an innocent victim. The time it takes to unlock the accounts will also depend on the severity of the case, he said.
