Preparing for a Cryptocurrency World: Chinese Edition

Over the past year, the cryptocurrency market has received a series of heavy blows from the Chinese government. The market took the hits like a warrior, but the combinations took a toll on many cryptocurrency investors. The market’s lackluster performance in 2018 pales in comparison to its stellar 1,000-percent gains in 2017.

What happened?

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

2017 was a landmark 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 banning Initial Coin Offerings (ICOs) and restricting domestic cryptocurrency exchanges. Soon after, mining factories in China were forced to close due to excessive electricity consumption. Many exchanges and factories moved overseas to avoid regulations but remained accessible to Chinese investors. However, they are still unable to escape the clutches 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 transacting with foreign crypto exchanges and related activities are subject to measures ranging from restricting withdrawal limits to account freezes. There are even ongoing rumors among the Chinese community of more extreme measures being imposed on foreign platforms that allow trading between Chinese investors.

“As for whether there will be further regulatory measures, 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


Imagine your child investing their savings to invest in a digital product (in this case cryptocurrency) whose authenticity and value he or she has no way of verifying. He or she may get lucky and become rich or lose everything 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 pointless ICOs. (I’m sure you’ve heard news stories about people sending coins to random addresses with the promise of doubling their investments and ICOs that just don’t make sense). Many clueless 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 cryptocurrency boom of 2017, participate in any ICO with a famous advisor on board, a promising team or decent hype and you are 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. Central Bank members report that almost 90% of ICOs are fraudulent or involve illegal fundraising. In my opinion, the Chinese government wants to ensure that cryptocurrency remains “controllable” and is not too big to fail in 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 highly doubt it as it’s pretty pointless to do. Financial institutions are currently prohibited from holding any crypto assets, while individuals are permitted but prohibited from conducting any form of trading.

A Government Cryptocurrency Exchange?

At the annual “Two Sessions” (so-called because two major parties, the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) participate in the forum held in the first week of March, leaders gather to discuss latest issues and make the necessary changes in the law.

Wang Pengjie, a member of the NPCC, deals with the prospects of a state-owned digital asset trading platform, as well as initiates blockchain and cryptocurrency education projects in China. However, the proposed platform will 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 will serve as a formal way for companies to raise funds (through ICOs) and investors to hold their digital assets and achieve capital appreciation” Excerpts from Wang Pengjie’s presentation in both sessions.

The Journey to a 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 crackdown on cryptocurrency, blockchain is gaining popularity and acceptance on various levels. The Chinese government is supporting blockchain initiatives and embracing the technology. In fact, the People’s Bank of China (PBoC) is working on a digital currency and has made fake transactions with some of the country’s commercial banks. It is not yet 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 turned out to be just a digital Chinese yuan, given that anonymity is the last thing China wants in its country. However, created as a close substitute for the Chinese yuan, the digital currency will be subject to existing monetary policies and laws.

The governor of the People’s Bank of China, Zhou Xiaochuan. Source: CNBC

“Many cryptocurrencies have seen explosive growth, which could lead to a significant negative impact on consumers and retail investors. We don’t like (cryptocurrency) products that take advantage of the huge speculation opportunity that gives people the illusion of getting rich overnight” Excerpts from Zhou Xiaochuan’s Interview on Friday, March 9.

In a media appearance on Friday, March 9, People’s Bank of China Governor Zhou Xiaochuan criticized cryptocurrency projects that take advantage of the crypto-boom to make money and fuel market speculation. He also noted that the development of digital currency is “technologically inevitable”

At the regional level, many Chinese cities are driving 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 promote the adoption of blockchain technology in financial services. the city.

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

All clues point to the fact that China is working towards a blockchain nation. China has always had an open mentality towards emerging technologies such as mobile payments and artificial intelligence. From now on, it is without a doubt that China will 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 has matured and is less volatile, but definitely not in 2018.