Preparing for a Cryptocurrency World: China Edition

Over the past year, the cryptocurrency market has suffered a series of heavy blows from the Chinese government. The market has taken a hit like a warrior, but combos have taken its toll on many cryptocurrency investors. The market’s lackluster performance in 2018 pales in comparison to its thousand-percent gain in 2017.

What happened?

Since 2013, the Chinese government has taken measures to regulate cryptocurrencies, but nothing compared to what was implemented in 2017. (See this article for a detailed analysis of the official notices issued by the Chinese government)

2017 was a banner year for the cryptocurrency market with all the attention and growth it garnered. Extreme price volatility has forced central banks to take more extreme measures, including banning initial coin offerings (ICOs) and clampdowns on domestic cryptocurrency exchanges. Soon, mining factories in China were forced to shut down due to excessive electricity consumption. Many exchanges and factories have moved overseas to avoid regulations but remain accessible to Chinese investors. Nevertheless, they still failed to escape from the claws of the Chinese dragon.

In the latest in a series of government-led 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 dealing with foreign crypto-exchanges and related activities are subject to measures ranging from account deposit limits to withdrawal limits. There are even ongoing rumors within the Chinese community for more extreme measures to be applied to foreign platforms that allow trading between Chinese investors.

“Whether to take further regulatory measures, we have to wait for orders from higher authorities.” On February 28, excerpts from an interview with the team leader of China’s Public Information Network Security Supervision Agency under the Ministry of Public Security

Why why why!?

Imagine your child investing his savings in a digital product (in this case, cryptocurrency) with no way to verify its authenticity and value. He could get lucky and strike it rich or lose it all when the crypto-bubble bursts. Now scale that to millions of Chinese citizens and we’re talking billions of Chinese Yuan.

The market is full of scams and worthless ICOs. (I’m sure you’ve heard of people sending coins to random addresses promising to double their investment, and ICOs that aren’t easily understood). Many unsophisticated 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 in 2017, participate in any ICO with a renowned advisor onboard, a promising team or a decent campaign and you’ll be guaranteed at least 3X your investment.

A lack of understanding of the firm and the technology behind it, combined with the proliferation of ICOs, is a recipe for disaster. Members of the central bank reported that nearly 90% of ICOs involved fraudulent or illegal fundraising. In my opinion, the Chinese government wants to ensure that cryptocurrencies remain ‘controllable’ and not too big to fail within the Chinese community. China, while aggressive and controversial, is taking the right steps towards a safer, more regulated cryptocurrency world. In fact, it may be the best move the country has made in decades.

Will China issue an ultimatum and make cryptocurrency illegal? I highly doubt it because it is quite pointless to do so. Currently, financial institutions are prohibited from holding any crypto assets while individuals are allowed but prevented from making any transactions.

A state-run cryptocurrency exchange?

At the annual “Two Sessions” (so named because the two main parties—the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC)—both participate in the forum held in the first week of March, leaders discuss the latest issues and pass necessary legislation. Get together to make amends.

Wang Pengjie, a member of NPCC has initiated educational projects on blockchain and cryptocurrencies in China, along with the potential of state-run digital asset trading platforms. However, an authenticated account will be required to be allowed to trade on the proposed platform.

“With the establishment of relevant regulations and cooperation with the People’s Bank of China (PBoC) and the China Securities Regulatory Commission (CSRC), a regulated and efficient cryptocurrency exchange platform will serve as a formal way for companies to raise funds (through ICOs) and investors to invest in their digital assets. “To Retain Wealth and Achieve Capital Appreciation” are excerpts from Wang Pengzi’s presentation at the two sessions.

March towards a blockchain nation

Governments and central banks worldwide have struggled to combat the growing popularity of cryptocurrencies; But one thing is for sure, everyone has adopted blockchain.

Despite the cryptocurrency crackdown, blockchain is gaining popularity and adoption at various levels. The Chinese government is supporting blockchain initiatives and adopting the technology. In fact, the People’s Bank of China (PBoC) is working on a digital currency and has conducted mock transactions with some of the country’s commercial banks. It is not yet certain whether the digital currency will be decentralized and offer the features of cryptocurrencies such as anonymity and immutability. Although the last thing China wants in their country is anonymity, it wouldn’t be surprising if it turns out to be just a digital Chinese yuan. However, created as a close alternative to the Chinese yuan, the digital currency will be subject to existing monetary policies and laws.

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

“Many cryptocurrencies have experienced explosive growth that could have significant negative impacts on consumers and retail investors. We don’t like (cryptocurrency) products that take advantage of the huge scope of speculation that gives people the illusion of getting rich overnight,” Zhou said in part on Friday, March 9th. Xiaochuan interview.

In a media appearance on Friday, March 9th, People’s Bank of China Governor, Zhou Xiaochuan criticized cryptocurrency projects that leverage on the crypto-boom to cash in and fuel market speculation. He also noted that the development of digital currencies is ‘technologically inevitable’.

At the regional level, many Chinese cities are running blockchain initiatives to boost growth in their regions. Hangzhou, famous for Alibaba’s headquarters, has made blockchain technology one of the city’s top priorities in 2018. The local government of Chengdu city is also proposed to build an incubation center to encourage the adoption of blockchain technology. City financial services.

Local conglomerates such as Tencent and Alibaba have partnered with blockchain firms or launched their own projects. Blockchain companies like VeChain have also secured multiple partnerships with Chinese companies to improve supply chain transparency in China.

All clues point to China working towards a blockchain nation. China has always been open-minded towards emerging technologies such as mobile payments and artificial intelligence. Henceforth, it is undoubtedly that China will be the first blockchain-enabled country. Will we see the Chinese government back down and let its citizens trade again? Perhaps, when the market has matured and is less volatile but definitely not in 2018.