Prepping for a Cryptocurrency World: China Edition

Posted by Digital_Zone on July 1st, 2021

In the last year, the cryptocurrency market took a series of heavy punches from the Chinese government. The marketplace took the hits just like a warrior, however the combos took its toll in many cryptocurrency investors. The marketplace lackluster performance in 2018 pales when compared with its stellar thousand-percent gains in 2017.

What has happened?

Since 2013, the Chinese government took measures to regulate cryptocurrency, but nothing compared as to the was enforced in 2017. (Check out this article for an in depth analysis of the official notice issued by the Chinese government)

2017 was a banner year for the cryptocurrency market with all the attention and growth it has achieved. The extreme price volatility forced the Central bank to adopt more extreme measures, like the ban of initial coin offerings (ICOs) and clampdowns on domestic cryptocurrency exchanges. Soon after, mining factories in China were forced to close down, citing excessive electricity consumption. Many exchanges and factories have relocated overseas in order to avoid regulations but remained accessible to Chinese investors. Nonetheless, they still fail to escape the claws of the Chinese Dragon.

In the latest series of government-led efforts to monitor and ban cryptocurrency trading among Chinese investors, China extended its "Eagle Eye" to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of carrying out transactions with foreign crypto-exchanges and related activities are put through measures from limiting withdrawal limits to freezing of accounts. There have even been ongoing rumors on the list of Chinese community of more extreme measures to be enforced on foreign platforms that allow trading among Chinese investors.

"For whether you will have further regulatory measures, we must wait for orders from the higher authorities." Excerpts from an interview with team leader of the China's Public Information Network Security Supervision agency under the Ministry of Public Security, 28th February

WHY WHY WHY!?

Imagine your child investing his / her savings to choose digital product (in this case, cryptocurrency) that he or she has no means of verifying its authenticity and value. He or she could get lucky and strike it rich, or lose it all when the crypto-bubble burst. Now scale that to an incredible number of Chinese citizens and we're referring to billions of Chinese Yuan.

The marketplace is filled with scams and pointless ICOs. (I'm sure you've heard news of men and women sending coins to random addresses with the promise of doubling their investments and ICOs that only don't make sense). Many unsavvy investors are in it for the cash and would care less about the technology and innovation behind it. The value of several cryptocurrencies comes from market speculation. Through the crypto-boom in 2017, take part in any ICO with either a famous advisor onboard, a promising team or even a decent hype and you are guaranteed at least 3X your investments.

A lack of knowledge of the firm and the technology behind it, combined with the proliferation of ICOs, is really a recipe for disaster. Members of the Central bank reports that almost 90% of the ICOs are fraudulent or involves illegal fundraising. In my opinion, the Chinese government wants to make sure that cryptocurrency remains'controllable'and not too big to fail within the Chinese community. China is taking the proper steps towards a better, more regulated cryptocurrency world, albeit aggressive and controversial. In fact, it might be the best move the united states has brought in decades.

Will China issue an ultimatum and make cryptocurrency illegal? I highly doubt so since it is pretty pointless to accomplish so. Currently, financial institutions are banned from holding any crypto assets while individuals are allowed to but are barred from carrying out any kinds of trading.

A State-run Cryptocurrency Exchange?

At the annual "Two Sessions" (Named because two major parties- National People's Congress (NPC) and the National Committee of the Chinese People's Political Consultative Conference (CPCC) both take part in the forum）held on the very first week of March, leaders congregate to go over about the latest issues and make necessary law amendments.

Wang Pengjie, a member of the NPCC dabbled to the prospects of a state-run digital asset trading platform in addition to initiate educational projects on blockchain and political cryptocurrency news in China. However, the proposed platform would require a authenticated account to permit trading.

"With the establishment of related regulations and the co-operation of the People's Bank of China (PBoC) and China Securities Regulatory Commission(CSRC), a regulated and efficient cryptocurrency exchange platform would serve as a formal method for companies to raise funds (through ICOs) and investors to put on their digital assets and achieve capital appreciation" Excerpts of Wang Pengjie presentation at the Two Sessions.

The March towards a Blockchain Nation

Governments and central banks worldwide have struggled to grapple with the increasing popularity of cryptocurrencies; but something is sure, all have embraced blockchain.

Regardless of the cryptocurrency crackdown, blockchain has been gaining popularity and adoption in a variety of levels. The Chinese government have been supporting blockchain initiatives and embracing the technology. In fact, the People's Bank of China (PBoC) have been focusing on an electronic currency and have conducted mock transactions with a number of the country's commercial banks. It's still unconfirmed if the digital currency is going to be decentralized and offer features of cryptocurrency like anonymity and immutability. It wouldn't come as a surprise if as it happens to be just a digital Chinese Yuan given that anonymity is the last thing that China wants in their country. However, created as a detailed substitute of the Chinese Yuan, the digital currency is going to be put through existing monetary policies and laws.

People's Bank of China Governor, Zhou Xiaochuan. Source: CNBC

"Lots of cryptocurrencies have seen explosive growth which brings significant negative impact on consumers and retail investors. We don't like (cryptocurrency) products that utilize the huge chance for speculation that gives people the illusion of getting rich overnight" Excerpts from Zhou Xiaochuan interview on Friday, 9th March.

On a media appearance on Friday, 9th March, Governor of People's Bank of China, Zhou Xiaochuan criticized cryptocurrency projects that leveraged on the crypto-boom to profit and fuel market speculation. He also noted that development of the digital currency is'technologically inevitable'

On a regional level, many Chinese cities have are driving blockchain initiatives to advertise growth in their region. Hangzhou, renown for being the headquarters of Alibaba, have stated blockchain technology to be one of many city's top priorities in 2018. The area government in Chengdu city have already been proposed the building of an incubation center to foster the adoption of blockchain technology in the city's financial services.

Local conglomerates such Tencent and Alibaba have formed partnership with blockchain firms or initiated projects on their own. Blockchain firms such as for instance VeChain have secured multiple partnerships with Chinese firms to boost supply chain transparency in China.