China has recently taken a strong stance against the cryptocurrency industry. The recent crackdown on cryptocurrencies will likely continue to intensify over the coming months and may lead to bans on holding tokens for Chinese citizens. Residents of China have long understood it is generally a losing game to be on the wrong side of policy emanating out of Beijing, and currently, it appears China is intent on cracking down on crypto.
China essentially announced on September 24th all digital cryptocurrencies transactions as illegal. This is not the first time that China has formulated its anti-crypto agenda.
The central bank of China said, “Virtual currency-related business activities are illegal financial activities” that endangers the safety of people’s assets. The Chinese government even banned its citizens from working for crypto-related companies.
The Chinese crypto ban initially affected the global crypto market as well, as the world’s largest cryptocurrency Bitcoin tumbled in valuation. Bitcoin prices were already reflecting volatility during the month and fell to approximately $42K, down from its mid-April high record of nearly $65K. However, Bitcoin reflected its resiliency, and as trades moved offshore along with crypto mining activities, the price rebounded. As of early October, the price of Bitcoin has climbed back to about $55K.
chinese anti-crypto agenda
The latest Chinese ban on crypto is a clear indication that China wants to limit or shut down all crypto-related trading.
Although China is the largest cryptocurrency market in the world, it appears China was never comfortable fully accepting or supporting the crypto industry. This year, China has been quite active in banning crypto-related activity initially affecting worldwide prices.
In 2019, China had already banned trading in crypto to curb the activity. However, citizens found loopholes and trading continued through foreign exchanges.
In reaction to continued trading in China, the restrictions imposed on the industry continued and were ratcheted up with more strict regulations imposed on cryptocurrencies.
In May 2021, Chinese State institutions gave a warning to crypto investors. They announced that crypto buyers and traders will receive no protection when transacting in crypto online. The government had indirectly pointed towards stringent crypto laws in the coming days.
In the following month, the Chinese government asked its banks and payment platforms to stop crypto-related transactions. The communist government also banned the mining of cryptocurrencies. This was a major move as China is thought to be responsible for just under 50% of all mining activities while the U.S. is just under 20%. This announcement initially contributed to the fall in Bitcoin valuation.
The latest September ban on crypto is viewed by some as an effort or decision by China to get rid of crypto completely. The Chinese government has declared “illegal financial activities” as a crime. Moreover, those who are involved in such activity will be prosecuted by the state. The Chinese definition of “illegal financial activities” also includes any kind of crypto trading.
AFTER-EFFECTS OF STRONGEST CHINESE BAN OF CRYPTO
Large-scale Chinese cryptocurrency miners of Bitcoin and Ethereum, are expected to move their high-powered, electricity-guzzling servers offshore. After eliminating domestic consumers from their rosters, digital currency exchanges and the numerous Chinese firms linked to the trade are expected to rebase offshore outside of China.
Zennon Kapron, founder of Kapronasia said “The exchanges have been pushing offshore anyways, and with the exchange business you need cloud infrastructure, you need developers, you need management to move things in the right direction, and so whether that is sitting in Taipei, San Francisco, Singapore or Shanghai, it doesn’t matter — those businesses are very virtual.”
The change demonstrates how virtual currencies might continue to circumvent official governmental control.
Over the last few years, China’s increasing pressure on cryptocurrency has forced investors to flee the country. Singapore looms as a top destination for crypto operations that do not require an actual onshore presence. As of July, the country had accepted around 300 cryptocurrency license applications.
In the interim, the market has appeared to absorb the news and disruption of China’s crackdown with the price of Bitcoin approaching $55K once again. It remains to be seen if other countries follow China’s crackdown placing further downward price pressure on crypto.