Over the past year, the cryptocurrency market has suffered a series of heavy blows from the Chinese government. The market has taken the hits like a warrior, but the combinations have taken their toll on many crypto investors. The lackluster market performance in 2018 pales in comparison to his stellar 100 percent gains in 2017.
What happened?
Since 2013, the Chinese government has taken measures to regulate cryptocurrency, but nothing compared to what was implemented in 2017. (See this article for a detailed analysis of the official notice issued by the Chinese government)
2017 was a major year for the cryptocurrency market with all the attention and growth it achieved. Extreme price volatility has forced the central bank to adopt more extreme measures, including a ban on initial coin offerings (ICOs) and restrictions on domestic cryptocurrency exchanges. Soon after, mining factories in China were forced to close, citing excessive electricity consumption. Many exchanges and factories have moved overseas to avoid regulations, but remain accessible to Chinese investors. Despite this, they still fail to escape the claws of the Chinese dragon.
In the latest in a series of government efforts to monitor and ban cryptocurrency trading among Chinese investors, China has expanded its “Eagle Eye” to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of conducting transactions with foreign crypto exchanges and related activities are subject to measures ranging from restricting withdrawal limits to account freezes. There have even been rumors among the Chinese community of more extreme measures to be implemented on foreign platforms that allow trading among Chinese investors.
“As to whether there will be further regulatory action, we will have to wait for orders from higher authorities.” Excerpts from an interview with the team leader of the China Public Information Network Security Supervision Agency under the Ministry of Public Security, February 28
WHY WHY WHY!?
Imagine that your child invests his savings in a digital product (in this case cryptocurrency) whose authenticity and value he cannot verify. He or she could get lucky and get rich or lose everything when the crypto bubble bursts. Now expand that to millions of Chinese citizens and we’re talking billions of Chinese yuan.
The market is full of scams and senseless ICOs. (I’m sure you’ve heard the news about people sending coins to random addresses with the promise of doubling their investment and ICOs that just don’t make sense). Many ignorant investors are in it for the money and could care less about the technology and innovation behind it. The value of many cryptocurrencies is derived from market speculation. During the crypto-boom of 2017, participate in any ICO with a well-known advisor, promising team or decent hype and you are guaranteed at least 3 times the investment.
A lack of understanding of the company and the technology behind it, combined with the proliferation of ICOs, is a recipe for disaster. Central bank members report that nearly 90% of ICOs are fraudulent or involve illegal fundraising. In my opinion, the Chinese government wants to ensure that cryptocurrency remains ‘controlled’ and is not too big to fail within the Chinese community. China is taking the right steps towards a safer, more regulated cryptocurrency world, albeit an aggressive and controversial one. In fact, it might be the best move the country has made in decades.
Will China issue an ultimatum and make cryptocurrency illegal? I really doubt it because it’s quite pointless to do that. Currently, financial institutions are prohibited from holding any crypto assets, while individuals are permitted but prohibited from conducting any forms of trading.
A government cryptocurrency exchange?
At the annual “Two Sessions” (so called because the two main parties – the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) participate in a forum）held in the first week of March), leaders gather to discuss the latest issues and make necessary amendments to the law.
NPCC member Wang Pengjie addressed the prospect of a state-owned digital asset trading platform, as well as the launch of educational projects on blockchain and cryptocurrency in China. However, the proposed platform would require an authenticated account to allow trading.
“With the establishment of related regulations and the cooperation of the People’s Bank of China (PBoC) and the China Securities Regulatory Commission (CSRC), a regulated and efficient cryptocurrency exchange platform would serve as a formal way for companies to raise funds (through ICOs) and for investors to retain their digital assets and achieve capital appreciation” Excerpts from Wang Pengjie’s two-session presentation.
March to Blockchain Nation
Governments and central banks around the world are struggling to cope with the growing popularity of cryptocurrencies; but one thing is for sure, everyone has embraced blockchain.
Despite the suppression of cryptocurrencies, blockchain is gaining popularity and acceptance at various levels. The Chinese government supports blockchain initiatives and embraces the technology. In fact, the People’s Bank of China (PBoC) has been working on the digital currency and conducted fraudulent transactions with some of the country’s commercial banks. It has not yet been confirmed whether the digital currency will be decentralized and offer cryptocurrency features such as anonymity and immutability. It wouldn’t be a surprise if it turns out to be just a digital Chinese Yuan considering that anonymity is the last thing China wants in its country. However, created as a close replacement for the Chinese yuan, the digital currency will be subject to existing monetary policies and laws.
Governor of the People’s Bank of China, Zhou Xiaochuan. Source: CNBC
“Many cryptocurrencies have experienced explosive growth that can have a significant negative effect on consumers and small investors. We don’t like (cryptocurrency) products that take advantage of a big opportunity for speculation that give people the illusion of getting rich overnight” Excerpts from Zhou Xiaochuan’s interview on Friday, 9 . March.
In a media appearance on Friday, March 9, the governor of the People’s Bank of China, Zhou Xiaochuan criticized cryptocurrency projects that took advantage of the crypto-boom for profit and fueled market speculation. He also pointed out that the development of digital currency is ‘technologically inevitable’
At the regional level, many Chinese cities are launching blockchain initiatives to promote growth in their region. Hangzhou, famous for being the headquarters of Alibaba, has declared blockchain technology as one of the city’s top priorities in 2018. The local government in Chengdu city has also been proposed to build an incubation center to encourage the adoption of blockchain technology in the city’s financial services.
Local conglomerates such as Tencent and Alibaba have also established partnerships with blockchain companies or launched projects themselves. Blockchain companies such as VeChain have also secured multiple partnerships with Chinese companies to improve supply chain transparency in China.
All clues point to the fact that China is working on a blockchain nation. China has always had an open mentality towards new technologies such as mobile payment and artificial intelligence. From now on, China will no doubt be the first blockchain-enabled country. Will we see the Chinese government back down and allow its citizens to trade again? Probably when the market matures and is less volatile, but definitely not in 2018.