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Despite Ban, Chinese Investors Continue to Buy ICO Tokens via Bitcoin OTC Providers

Despite China’s infamous blanket ban on cryptocurrencies, Initial Coin Offering (ICO) investing is making a resurgence in the country as Bitcoin Over-The-Counter (OTC) exchanges gain prominence, reported local outlet Sina News on Sept. 26.

OTC Market Fueling China’s Crypto Craze

Most OTC providers are overseas-registered “shell” companies that bypass local supervision of the cryptocurrency market. Such firms provide their services to customers regardless of the strict banking laws in place by Chinese banks, such as People’s Bank of China which recently stated it strives to protect investor interests from “digital trading risks.”

As corporations–even social media players–and government bodies join forces to curb cryptocurrency investing in China, the citizens’ lure towards digital tokens means a black market for the rising asset class is forming.

The report suggests firms are employing a variety of methods to cover tracks. While foreign incorporations are an easy method, few companies remove the word “blockchain” from all advertisements.

Payment Platforms Support BTC Purchase

Importantly, it was observed that the cryptocurrency plunge in 2018–which saw over $600 billion leave the crypto market–has not deterred the purchase of ICO tokens in the Chinese Renminbi.

Platforms like CoinCola and OTCBTC have been pointed out in particular for allowing the purchase of bitcoin via Alipay, WeChat, or bank wire, after which a customer can purchase obscure ICO tokens via an inbuild crypto-to-crypto platform.

A local industry participant told Sina News:

“It seems that the entire process platform does not violate the relevant policies, but the over-the-counter transaction has actually opened a hole in the ICO token transaction.”

OTC trading has gained significant prevalence in the country. Reports suggest the media has a large role to play in this, especially with indirect advertisements of a project. In addition, crypto-focussed marketing companies over whitepaper writing, video editing, and banner making services to new token issuers, with starting rates as high as 1 BTC for a few social media posts.

The availability of reliable Virtual Private Networks (VPNs) makes accessing OTC networks an easy task, and investors connecting with like-minded individuals on Telegram groups and other English media channels.

Fraudsters Continue Operations

Several frauds without an actual token use the “blockchain” buzzword to attract and deceive unknowing investors. Overall, Sina estimates there are 264-such ICO projects operating in China, available for trading on local exchanges like Gansu, but each one having questionable origins and “break rates” of 98.8 percent.

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Meanwhile, industry observers believe China’s supervision to continue to deepen as “virtual currency speculation” surfaces as an industry.

Li Honghan, a researcher at the International Monetary Institute of the Renmin University of China, that ICO firms falsely market their projects to lure retail investors while teaming up with marketing firms to create hype and “FOMO” for their tokens. Such a method results in an inevitable loss for investors, while companies facilitating the move “break the bank.”

Honghan concludes stating global authorities must form a joint force to curb investor losses and supervise ICO projects, as local efforts are no longer enough to control the burgeoning industry.

Posted In: , , ICOs

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