I made four transactions, but my bank card was frozen three times. The last time I chose Alipay, but it was also frozen because the system determined the transaction was abnormal.

Having bought but not daring to sell, and profits difficult to convert into real wealth, similar experiences loom like dark clouds over every cryptocurrency trader as Bitcoin prices repeatedly hit new historical highs.

Since its birth, despite frequent and drastic price fluctuations, Bitcoin has become a well-known alternative asset that more and more people are familiar with and trade, with its price continuously rising. On the flip side, Bitcoin's semi-anonymity has become a breeding ground for some criminals to hide their identities, transfer funds, and evade foreign exchange controls. Especially since 2017, when multiple countries, including China, have cut off the means of purchasing Bitcoin and other digital assets with fiat currency, various 1:1 pegged stablecoins like USDT and USDC have become basic tools in the cryptocurrency space, providing more convenient and risk-free channels for these activities.

Since 2020, with the joint efforts of the Ministry of Public Security, the Central Bank, and other departments to combat the funding chain for cross-border gambling, activities using Bitcoin, stablecoins, and other virtual assets for money laundering and fund transfer have attracted closer regulatory scrutiny. Once involved in certain illegal funding chains, such as selling virtual coins at suspected OTC merchants or being judged as abnormal transactions by banks, it can trigger a bank card freeze, with the duration ranging from three days to two years. Even worse, one may be instructed by public security departments to cooperate in investigations and explain the origins of the funds.

Amid the wave of frozen cards, although cryptocurrency prices are climbing by the end of the year, there is a sense of panic within the community, with OTC traders feeling anxious. A seasoned player told Tencent News (Qianwang) that he boldly bought in from the low point of Bitcoin prices in March and later invested in some DeFi concept assets, making over 10 million this year. However, the widespread experiences of friends getting their cards frozen have made him hesitant to easily try cashing out, so he can only convert to stablecoins and hold them on the exchange.

A virtual asset OTC trader described to Tencent News (Qianwang), 'A few years ago, the cryptocurrency space wasn't so mixed, so KYC was easier to do. But in the past two years, there have been scams, gambling, and even drug-related funds trying to disguise themselves using virtual currencies to launder money. A slight mistake can lead to trouble.' Although this portion of funds accounts for a very small percentage, once involved, the entire upstream and downstream of the capital transmission chain will be implicated, leading to frozen cards and even more severe consequences.

Tencent News (Qianwang) has learned from sources close to regulators that the central bank and the foreign exchange bureau have already established comprehensive regulatory measures for the aforementioned risks, with dedicated departments responsible. 'For example, on the day the stablecoin Libra released its white paper, we asked them to explain the risks involved.' As the regulatory crackdown on anti-money laundering and cross-border gambling funding intensifies, future actions against gray activities in the cryptocurrency space will only become stricter.

This also means that the surge of frozen cards may just be the beginning. 'Compliance is the only way forward.' A co-founder of a leading exchange told Tencent News (Qianwang) that exchanges need to tighten their scrutiny from the source and conduct more stringent reviews of OTC merchants' qualifications.

Stablecoins are an excellent vehicle for money laundering.

Since its inception in 2009, Bitcoin has rapidly gained worldwide popularity in recent years due to its limited quantity, decentralization, and semi-anonymity, attracting considerable attention.

However, these features have also led to Bitcoin being used by a few criminals in various gray areas. Using Bitcoin to circumvent central bank foreign exchange controls to transfer capital abroad has also become one of its purposes.

An extreme case is the trading company Easton, which profited over 2 billion yuan through high-frequency trading during the unusual fluctuations in the A-share market in 2015, seeking to transfer massive amounts of money through Bitcoin.

Tencent News (Qianwang) learned that at that time, Easton found the Bitcoin China trading platform, but relevant personnel from Bitcoin China revealed that Easton did not pass the corresponding real-name verification, and the transaction amount was huge, raising the platform's alert, leading to the rejection of Easton's trading request.

However, Bitcoin's significant price volatility and slow transaction speed cannot provide a sufficient safety cushion for money laundering activities. As the virtual asset market develops, stablecoins that connect fiat and virtual assets have become even more attractive to criminals because they offer a stable value in the highly volatile virtual asset market, becoming not only the basic currency in the cryptocurrency space but also a more efficient and safer vehicle for money laundering.

Among them, USDT (known in Chinese as 'Tether') is the most widely used stablecoin, with a current total market capitalization exceeding $19 billion. This stablecoin was launched by Tether, where 1 USDT is equivalent to 1 USD. Users can exchange USDT for USD at a 1:1 ratio, and Tether claims to maintain a 1:1 reserve guarantee, meaning that for every 1 USDT token issued, there will be 1 USD in its bank account as collateral.

The risks posed by stablecoins have long been recognized by domestic regulators. Mu Changchun, director of the Central Bank Digital Currency Research Institute, has repeatedly stated that global stablecoins present numerous risks to public policy and regulation, such as legal certainty, governance, anti-money laundering, counter-terrorism financing, regulation of weapons of mass destruction, payment system security, market stability, personal privacy and information protection, consumer and investor protection, tax compliance, and other challenges, and could very likely lead to the complete opening of underground economic channels, becoming tools for illegal transactions.

The Financial Action Task Force (FATF), an international authority on anti-money laundering, also pointed out that stablecoins can cause changes in the virtual asset ecosystem, leading to significant money laundering and terrorist financing risks.

Everyone is getting in.

The money laundering risks triggered by virtual assets, especially stablecoins, are the fundamental reason behind the current wave of frozen cards in the cryptocurrency space.

A founder of a virtual asset wallet told Tencent News (Qianwang), 'The biggest problem in the past two years is that everyone has entered the cryptocurrency space, and we cannot get involved with these people.' Another OTC trader with years of experience lamented that when he first started in this business, the most he did was prevent telecom fraud funds, but with the rise of overseas scams, many of these 'everyone' are now involved with gambling or even drug money, trying to use OTC transactions to achieve cross-border fund transfers or money laundering purposes.

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