After increasing in value for months, cryptocurrencies, led by Bitcoin, have recently depreciated across the board. Chinese state media admitted that it’s directly related to two recent moves by Beijing financial authorities.
The first major action was on May 18, when National Internet Finance Association of China, China Banking Association, and Payment & Clearing Association jointly issued a statement on preventing the risks of speculation in virtual currency transactions, saying that speculation in virtual currency transactions “disrupts the normal economic and financial order.” It asked its members to “resolutely not carry out or participate in any business activities related to virtual currency.”
Cryptocurrencies Keep DepreciatingAccording to real-time statistics from CoinMarketCap, as of the early morning of May 23, Beijing time, the total market value of global cryptocurrencies fell to $1.74 trillion from $2.51 trillion two weeks ago, a drop of 30.7 percent.
Among them, the former top three currencies, Bitcoin (BTC), Ethereum (ETH), and Binance Coin (BNB), have all dropped in value in the past two weeks. The price of BTC has dropped from more than $50,000 to $38,000.
Billions in Gambling Funds Flow Out of China Every YearThe statement is actually implementing the spirit of the Chinese Communist Party’s (CCP’s) April 23 meeting about “cracking down on the cross-border gambling fund chain.”
Fan Yifei, deputy governor of the People’s Bank of China, said at the meeting that targeted measures should be taken to strengthen risk prevention measures against money laundering through online gambling schemes, e-commerce platforms, and other new methods such as using virtual currency and blockchain technology to escape fund traceability.
Online money laundering schemes usually involve depositing money taken from a valid user’s bank card or WeChat Alipay payment code into a betting account, and then gambling small amounts with an online casino. The scheme generally uses virtual currency when emptying the account, which makes it easier to carry out cross-border money laundering undetected.
According to the CCP’s official media, the huge number of online money laundering transactions in China is driven by the extremely high capital flow demand for cross-border online gambling platforms. By the end of 2020, China had investigated 14,000 cases of cross-border gambling.
Liao Jinrong, the International Cooperation Bureau director of the CCP’s Ministry of Public Security, confirmed in September 2020 that according to a preliminary investigation, gambling-related capital flight alone exceeded $167 billion every year.
Huge Amounts of Money Flowing Out of China Via CryptocurrenciesThe world’s largest cryptocurrency trading platforms, Binance, Huobi, and OKEx, were all founded in China and backed by Chinese capital. Binance, the largest in the world, has moved its servers and staff overseas and has made every effort to grow in the U.S. market since September 2017, when the CCP introduced laws to rigorously regulate cryptocurrency trading. However, the majority of its users, who mostly engage in over-the-counter (OTC) cryptocurrency trade, are still from China.
Sino Global Capital said in a report published in 2020 that “OTC trading is a huge market in China, much bigger than people think,” and that most exchanges offer a range of OTC trading options, although USDT is the most popular way for Chinese investors to trade cryptocurrencies.
These OTC traders generally have accounts with cryptocurrency-friendly banks in Western countries, including Silvergate and Deltec. Deltec has the same reserve bank as Tether, the parent company of USDT, so these OTC traders can buy USDT directly from Tether, thus converting the Chinese Yuan into U.S. dollars and other Western currencies.
According to a 2019 survey of crypto transactions, reported in 2020 by the blockchain forensics company Chainalysis, more than half (52.2 percent) of the funds associated with criminal activity were transacted through Binance and Huobi.
In addition, according to the 2020 Annual Digital Currency Anti-Money Laundering Report released by blockchain security company PeckShield, the value of unregulated cross-border virtual currency trading in China reached $17.5 billion in 2020, up 51 percent from $11.4 billion in 2019, and continues to grow rapidly.