Chinese Government Freezes Miners’ Bank Accounts – Is that the Real Reason for the Rally?

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Once again, the Chinese government is taking decisive action against the crypto economy. Many miners have problems selling the mined cryptocurrencies, which leads to a shortage of the supply of new coins. But does that really matter?

With Bitcoin on the verge of a new all-time high, many Chinese miners lack the money to pay their electricity bills.

Because the electricity providers only accept yuan – and it is becoming increasingly difficult for miners to exchange the mined cryptocurrencies for yuan. The initial reports conclude that this suffering of the miners is the real cause of the joy of the investors: the scarcity of new coins flowing on the exchanges is driving the rally.

The main source that most of the media refers to is a survey by Collin Wu , a Chinese crypto market observer. He did a survey of miners, and of those surveyed, 74 percent said they had problems with their electricity bills. The reason is that a new “wave of frozen cards” is currently sweeping the Chinese crypto industry.

Since on-exchange trading in cryptocurrencies has been banned in China since 2017, most miners are dependent on so-called “Over the Counter” (OTC) deals in order to exchange cryptocurrencies for yuan. OTC means off-exchange trading, which can be managed by an exchange, but does not appear in the order book.

Now, however, the government is apparently again taking stricter action against money laundering and fraud in the financial sector in general and in the crypto space in particular. In this context, she directs her attention particularly against OTC desks, i.e. offices that organize OTC trading, as these often play a role in money laundering. OTC traders have their credit cards blocked, which affects miners directly on the one hand, and indirectly on the other, as many traders avoid the markets for fear of losing their credit cards. Accordingly, Bitcoin prices on the Chinese OTC markets are also 1-3 percent cheaper.

Of course, this has consequences for the price. “The lack of supply has fed the trend of this rally extremely well,” writes the trading company QCP Capital from Singapore, according to Coindesk in its Telegram channel, “we do not see any of the typical large sales by miners in the recent past.” The pools still had Large quantities of coins sold in early September. But after the government arrested stock exchange chiefs like Star Xu from OKEx and, in early November, allegedly also the CEO of Huobi, the last major trading platforms also dried up, which is why the sales seeped in.

The former manager of F2Pool, Thomas Heller, who now heads the company HASHR8, confirms this: It is a challenge for the Chinese miners to exchange Bitcoin and Tether dollars for yuan.

If those who throw fresh bitcoins on the market have fewer opportunities to sell the coins, then the supply on the exchanges logically dwindles – and if the demand remains the same, the price rises. This is the basics of economics. What is more fascinating, however, is how much this core mechanism of the markets works for Bitcoin: The stronger a large economy like China takes action against Bitcoin, the more powerful Bitcoin becomes.

The miners’ problem with the government is not entirely new. The authorities in China have long been acting with unsteady severity against the crypto-economy. This year, however, it seems to be more aggressive than ever, explains Heller to the magazine CryptoBriefing :

“There have always been times where due to anti-money laundering reasons, the banks would have an eye out for these kinds of BTC transfers. But, particularly in the last four to six months, it has been a lot more frequent.”

A wave of bank account and credit card freezes appears to have been rolling across the industry since June. It was probably triggered by an incident in Dongguan, where an OTC trader was involved in criminal activities. The trader had close ties to some miners, which dragged them into the affair. In total, around 4,000 bank accounts were confiscated, with around 300 million yuan in them. From Dongguan, the case spread widely, drawing more and more miners and companies into it.

According to Wu, some miners have already reached their pain threshold and shut down the mining machines. Likewise, some OTC companies that specialize in selling miners’ coins have closed their business.

However, one should not overestimate the effects. Jiang Zhouer from BTC.top explains to Forkast.News that the pressure on bank accounts is primarily affecting small and medium-sized miners.

“We acknowledged that some crypto miners have had difficulty financing their operations, due to their bank accounts having been frozen,” Jiang said. But he also pointed out that large cryptocurrency miners, which have reliable trading channels, are rarely impacted.

Big miners have much more reliable trading connections and are therefore hardly affected.

“First, we won’t store large amounts of money in bank cards,” Jiang said, “a small amount of money might be stored in the bank account for purchasing  mining machines, but it won’t last long, always just one day.”

Also, the government’s tough crackdown on crypto companies does not appear to be aimed directly at money laundering and fraud, especially online fraud that uses the OTC offices to launder revenues.

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Ethan Hunt

Bitcoin Maximalist and Toxic to our banking and monetary system. Separation of money and state is necessary just like the separation of religion and state in the past.

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