Crypto winter won’t stop HK & China OTC markets: they remain active!

Despite the prolonged ‘crypto winter’ of the past year, it appears that Hong Kong and mainland China have remained active in their over-the-counter (OTC) cryptocurrency trading markets. In a recent report from cryptocurrency intelligence firm, Chainalysis, it was revealed that these markets were still substantial net buyers of crypto-assets. This article explores the findings of the Chainalysis report, and the implications they hold for the greater crypto-industry.

1. Hong Kong and China’s OTC Markets Stay Active Despite Crypto Winter

Crypto Slump Has Minimal Impact

Despite the broader apathy towards crypto brought on by the ongoing market slump, Hong Kong and China’s over-the-counter (OTC) markets remain active. OTC platforms, which are used to facilitate large crypto trades without publicly affecting the market price, have seen increased activity.

The OTC market in China is heavily regulated, with transactions being required to go through licensed exchangs. Chinese citizens are generally restricted to trading only crypto-to-fiat currency. China’s OTC outlets boast a wide selection of trusted sellers, and have grown in popularity since 2017, with transactions up to $250 million per day.

In Hong Kong, definitions of fiat currency and crypto assets are yet to be clarified. Transactions are not yet subject to the same regulations as mainland China, but exchanges are monitored to ensure KYC and AML compliance. Users are free to trade any asset they like, in physical or digital form.

One example of the rise in popularity of Hong Kong’s OTC market is the fact that Posun Technologies Ltd, a blockchain data and brokering company, raised approximately $3 million in private funding this February.

2. Chainalysis Reports Surging OTC Activity In HK and China

Chainalysis, a cryptocurrency data firm, has released a report revealing a surge in over-the-counter (OTC) trading activity in both Hong Kong and China. The report indicates that Chinese and Hong Kong OTC exchanges handled approximately $219 million worth of Bitcoin and other crypto assets in the 12-month period through April 2019.

According to the report, the OTC market share of US Dollars has steadily declined over the past year to about a third of all transactions measured. Instead, activities using Chinese Yuan and Hong Kong Dollars have become more prevalent. The latter two fiat currencies accounted for roughly half of all transactions in 2019, up from around one fifth in 2018.

To protect investors from scams and frauds, Chainalysis suggest few key points to exercise caution while trading OTC:

• Research: It is important to research an OTC broker before trading.
• Agreements: Negotiate clear agreements and conditions prior to starting a trading session.
• Monitor the Payment: Utilize your own wallets to track and monitor payment transactions.

3. Crypto Winter Impact Limited on HK and China’s OTC Markets

The recent crypto winter has taken its toll on Over-The-Counter (OTC) markets in China and Hong Kong. From swings in pricing to low liquidity, these OTC markets have seen vast changes in the past year.

First, the decline in Bitcoin prices significantly impacted the pricing structure of these markets. Many Chinese OTC traders were left holding assets with discounted valuations due to market volatility. Accordingly, the cost of entry for these markets also saw an increase, as fewer investors were willing to trade because of minimal profit outlooks. On top of this, liquidity has dried up in many of these markets, making it difficult for buyers and sellers to enter into transactions.

In addition, tighter regulation has caused many reputable market makers to leave or reduce their position in these OTC markets. This includes internationally known firms, such as Circle and SFOX, which have significantly reduced their services in China’s OTC market. Furthermore, a number of Chinese firms, including ANX and Bobby, have exited the market completely.

• Prices of Bitcoin and other cryptos decreased, significantly impacting the pricing structure of these markets.
• Cost of entry for these markets increased as fewer people were willing to invest.
• Liquidity decreased due to the lack of investors.
• Internationally-known firms, such as Circle and SFOX, have significantly reduced their services in China’s OTC market.
• Chinese OTC markets saw a mass exodus of domestic firms, such as ANX and Bobby.

These findings from Chainalysis demonstrate the resilience of Hong Kong and China’s OTC markets, even in times of crypto winter. Despite the fact that the crypto markets overall are struggling at the moment, this shows that some areas are still going strong – and could be a sign of what is to come as the crypto winter winds down.