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In a recent development, Chinese police have uncovered a massive underground banking racket in the city of Chengdu, involving the popular stablecoin Tether (USDT). The illegal operation, which facilitated the exchange of foreign currencies, is estimated to be worth around $1.9 billion.
The news comes just days after reports that Chinese authorities shut down another very similar operation that facilitated illegal currency exchange between the Chinese yuan and South Korean won, using cryptocurrency as a medium.
According to a media report issued by the Chengdu city police, 193 suspects across 26 provinces have been arrested in connection with the underground banking operation. The authorities also successfully dismantled two related operations in Fujian and Hunan provinces. Additionally, the police froze 149 million yuan (approximately $20 million) linked to the illegal USDT banking activities.
Circumventing China’s Crypto Ban
The underground banking operation reportedly began in January 2021 and was primarily used to smuggle medicine, cosmetics, and investment assets overseas. Despite China’s comprehensive ban on crypto-related activities, Chinese traders continue to find ways to circumvent the prohibition and utilize crypto assets through alternative means.
A report by Kyros Ventures reveals that Chinese traders are among the world’s largest stablecoin holders, with 33.3% of Chinese investors holding multiple stablecoins, second only to Vietnam’s 58.6%.
In recent years, the Chinese government has implemented a series of bans on cryptocurrency use, exchanges, and Bitcoin mining operations. However, the local population has consistently found ways to evade these restrictions.
Following the Bitcoin mining ban, China’s contribution to the Bitcoin network hash rate initially dropped but surprisingly rose to second place within a year, despite the ban. Similarly, after the country banned centralized exchanges, Chinese traders shifted their focus to decentralized exchanges and significantly increased their use of decentralized finance-based protocols. Some traders have even resorted to using virtual private networks to defy the ban.
Despite Chinese authorities largely hostile to crypto, some local developments still happen in the industry. Hong Kong fund managers sought approval for spot Bitcoin and Ethereum ETFs in mid-April, they saw them be approved just days later. Earlier this month, both those products became available on the local stock exchange.
