Op, you didn't say what you were doing with your bitcoins you stored on your Xapo account?

I am asking, because online wallet services are known for monitoring EVERY single transaction and bitcoin flow.

Every incoming/outgoing transaction is checked. I am not exactly familiar with Xapo and their ToS.

But I know for a fact that if you gambled with your BTC and use for example Coinbase wallet your account will be frozen as well.

So this - or other 'suspicious' activity is most likely the reason your account is 'blocked'.