Chinese Police Arrest 9 in alleged $13 million Crypto Pyramid Scheme

Avi Rosten

Chinese Police have arrested the founding members of an alleged cryptocurrency pyramid scheme following several weeks of investigation. Police in the Chinese city of Xi’an shut down the operation that is claimed to have already obtained 86 million yuan ($13 million) from over 13,000 participants in the scheme.

According to the report by the local Huashang News, the scheme has already affected members in 31 provinces and municipalities across the country despite only launching on March 28th of this year.

The report describes how the scheme sold a cryptocurrency – DBTC – at a token price of 13 yuan ($0.48) and promised new members returns of 80,000 (c.$13,000) yuan a day for an initial investment of 3 million yuan ($480,000).

The police added that to bolster their international appeal to investors, the operation - linked to the Hong Kong-registered DTC Holding – spent 30,000 yuan to hire a foreign-looking man as chairman of DTC.

To further convince investors, the project organised promotional events in several cities across China and in Cambodia and promised DBTC listings on several Chinese exchanges.

After arousing the suspicions of the of the Xi’an Public Security Bureau on April 4th, the Economic Investigation Department launched an investigation into the scheme and its alleged ringleader going by the name of Zheng.  

Arresting nine suspects in total, the police believe that suspects had been planning the scheme since October 2017 and had hoped to capitalise on the popularity of Blockchain to attract investors.

Chinese Crypto Fraud

This latest alleged fraud is by no means the first to hit the news in China.

Crypto-scams such as the fraudulent Gemcoin Ponzi scheme of 2015 affected many Chinese and Chinese-American investors, and the infamous $1.5 billion dollar EDG pyramid scheme of January 2017 have pushed Chinese law enforcement to take a tough stance towards crypto-fraud.

The Ministry of Public Security in a statement on Jan 19th affirmed their commitment to stamping out this kind of financial fraud, making a commitment to: 

“punishing the members of the pyramid selling field, [and] annihilate and destroy the network pyramid selling and criminal activities.”

The Ministry of Public Security

Bitcoin Trading at $600 Premium in India as Potential Ban Looms

Bitcoin (BTC) is currently trading at a roughly $600 premium in India, according to the market price available on the rupee-based exchange BitBns.com.

At the time of writing, bitcoin trades for just under 8 lakh rupees, or 800,000 INR, which is nearly $11,500 - significantly more than the going dollar price of $10,860.

This extreme price premium can be attributed to the difficulty of buying crypto in the country. As of last year, all regulated Indian banks and financial institutions have been banned from transacting in, and offering services related to crypto.

But the environment could soon become even more hostile.

CryptoGlobe reported in late April that a government working group made up of Indian tax, consumer protection, and general economic ministries had recommended a complete ban on even transacting or owning cryptoassets, much less integrating them into the mainstream, legal economy.

Bitcoin Demand Strong in India?

BitBns, one of the few operational rupee-denominated exchanges remaining, has apparently been able to skirt the increasingly draconian environment by allowing users to conduct their own P2P market, facilitated by the website, in order to buy and sell in Indian rupees. Other popular Indian exchanges, like Coindelta, have been forced to shut down.

The high premium may suggest a healthy demand in India for bitcoin and other cryptoassets, as Indians without international banking connections are forced to use the local currency to buy crypto. Data from crypto analytics website Coin.dance show that another popular crypto-fiat P2P platform, LocalBitcoins, has seen a sharp uptick in Indian trading volume since March-April.

indialocalbitcoins.png(source: Coin.dance)

CryptoGlobe reported last month that volumes were not affected by, and even increased in spite of, the threat of a crypto ban.

Indian Government Measures

One recent instance in particular shows just how far the Indian government seems to be going to control the Indian economy.

In late 2016, the national government suddenly and without warning even to its own ministries, declared that all 500- and 1,000-rupee banknotes currently in circulation were null and void - in an action that is known in India as “Demonetization.” These notes represented more than half of the physical money then in circulation in the country.

While the stated aims of the action were to root out corruption and “black money” from the economy, Demonetization has often been panned as a disastrous failure that cost 1% of the country’s GDP, a loss of 1.5 million jobs, and hurt the poor most of all.