This is why China finally killed its bitcoin boom

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Whenever Beijing announces a crackdown on their industry, the common joke among the cryptocurrency is that China has banned cryptocurrency 18 times already. Chinese government agencies have issued a series of increasingly restrictive but never conclusive legal bans on various aspects of crypto since 2013; all the while, the Chinese crypto industry has thrived. It turns out that the nineteenth time could be the charm.

On September 24, China’s central bank and its National Development and Reform Commission released two documents. One banned cryptocurrency mining following an earlier crackdown in May, the other declared illegal all cryptocurrency transactions and all companies providing cryptocurrency trading services to Chinese citizens as being engaged in illicit financial activities. Some of the usual bewildered poise has been deployed on crypto-Twitter, but the general reaction to the ban is that China is serious this time around.

The ban is sweeping, outright, comprehensive, it does not focus on a partial aspect, said Jonathan Padilla, co-founder and deputy director of Stanford University’s Future of Digital Currency initiative, which has conducted field research at the central bank of China. And it seems that senior government officials are doing it. Authorities who signed at least one of the two documents include the Ministry of Public Security, the Supreme People’s Court, and the Supreme People’s Procuratorate, suggesting aggressive enforcement is likely.

Several exchanges, wallets and other cryptocurrency companies have announced that they will stop providing services to users in mainland China and have imposed a blanket block of all Chinese IP addresses on their services. Given the wording of the official document, which explicitly distinguishes foreign trade aimed at Chinese residents, the industry appears to have taken an overly cautious approach. It remains to be seen to what extent individual citizens will be threatened by the new level of enforcement, said Luisa Kinzius, director of China-focused consultancy Sinolytics. [But] The announcement is also aimed at any Chinese citizen working for crypto-related companies overseas, declaring their work illegal and putting them at risk of legal investigation.

The growing Chinese crackdown on bitcoin and other cryptocurrencies was always going to happen. The borderless and unregulated nature of cryptos runs counter to the Chinese government’s vision for a state-dominated economy. Moreover, Beijing considers cryptocurrencies to be the epitome of insane guesswork. The Chinese government has just reaffirmed in its new 14th Five-Year Plan the outline of China’s economic planning for the next five years that the financial system should primarily serve the real economy, not speculation, Kinzius said. China is very hesitant about pure financial speculation due to financial stability issues, and of course the cryptocurrency is highly speculative.

These general concerns are now compounded by recent developments. In September 2020, China announced its intention to halt the annual growth of its CO2 emissions by 2030 and become carbon neutral by 2060. This necessarily implies a crackdown on cryptocurrency mining , the energy-intensive and often carbon-intensive process used to maintain a network of cryptocurrencies, which Chinese authorities consider to be of little benefit to the country’s economy. On the other hand, China is currently piloting its Digital Chinese Yuan, a state-backed digital currency designed to offer the surface convenience of cryptocurrency without any of the benefits of privacy and decentralization and, arguably, its lack of government oversight. From Beijing’s perspective, allowing the digital Chinese Yuan to coexist with any other virtual asset does not make sense. China, Kinzius said, wanted to avoid competition [from] cryptocurrencies, especially as it prepares to make the digital Chinese yuan available to overseas users during the Beijing 2022 Winter Olympics.

To ensure successful adoption of digital currency, China has no interest in other attractive and rising alternative payment options, she said.

Chinese industry watchers don’t think the new regulations will go so far as to ban ownership of cryptocurrency, even though it makes it clear that anyone gets scammed through a crypto-linked system that doesn’t is not unusual in China will not enjoy any legal protection. People will always find ways to trade cryptocurrency, through over-the-counter trading. [in which the exchange of crypto for cash happens offline between peers] or VPN, says Padilla. But there will be higher risk and less protections for investors, which Beijing hopes will lead to less retail exposure to crypto.

Some cryptocurrency enthusiasts are hoping that China’s crackdown on established exchanges will push Chinese crypto-traders towards so-called decentralized financial organizations or blockchain-based DeFi platforms that can provide multiple services and are only nominally. controlled by no party or company. Indeed, Colin Wu, a China-based journalist covering crypto, revealed that Chinese cryptocurrency users are actively discussing how to learn the challenge.

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