Preparing for a Cryptocurrency World: China Edition

In the past year, the cryptocurrency market has taken multiple heavy punches from the Chinese government. The market hit like a fighter, but the combos have done this damage to many cryptocurrency investors. Unnecessary market performance in 2013 compared to its thousands of percent profit in 2014.

What happened?

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

2017 was the banner year for the cryptocurrency market with all the attention and growth. Extreme price volatility forced the central bank to take further final measures, including a ban on initial currency offers (ICOs) and a clampdown on domestic cryptocurrency exchanges. Soon, China’s mining factories were forced to shut down, citing excess power consumption. Many exchanges and factories have relocated abroad to avoid regulations but remain accessible to Chinese investors. Yet, they still failed to survive the claws of the Chinese dragon.

In the latest series of government-led efforts to monitor and ban cryptocurrency trading among Chinese investors, China has expanded its “le gol i” to monitor foreign cryptocurrency exchanges. Measures ranging from restriction to limitation in the case of deposit of accounts to suspected companies and bank accounts for transactions with foreign crypto-exchanges and related activities. There are even rumors circulating within the Chinese community about implementing more final measures to allow Chinese investors to trade on foreign platforms.

“We will have to wait for orders from higher authorities on whether there will be more regulatory measures.” Excerpts from an interview with the team leader of China’s Public Information Network Security Supervision Agency under the Ministry of Public Security on February 26

Why why !?

Imagine your child saving or investing in a digital product (in this case, cryptocurrency) that there is no way to verify his or her authenticity and value. He or she may be lucky and make it rich, or the crypto-bubble may burst and lose everything. Now scale it to millions of Chinese citizens and we are talking about billions of Chinese yuan.

The market is full of scams and meaningless ICOs. (I’m sure you’ve heard of people sending coins to random addresses with a promise to double investments and ICOs). Many incredible investors are in it for the money and will think less about the technology and innovation behind it. The value of many cryptocurrencies stems from market speculation. During the crypto-boom in 2017, take part in any ICO including any famous advisor, board, promising team or decent hype and you are guaranteed to invest at least 3x.

The 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 reported that about 90% of the ICOs involved fraud or illegal funding. In my opinion, the Chinese government wants to ensure that the cryptocurrency remains ‘controllable’ and that it is not too big to fail within the Chinese community. China is taking the right steps towards a safer, more regulated cryptocurrency world, despite being aggressive and controversial. In reality, it may be the best move the country has taken in decades.

Will China issue an ultimatum and make cryptocurrency illegal? I highly suspect so since it is quite meaningless to do. Currently, financial institutions are prohibited from holding any crypto assets when individuals are allowed, but there are restrictions on any type of business.

A state-run cryptocurrency exchange?

In the annual “two sessions” (named because the two main parties – the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPC) both attend the forum in the first week of March, leaders discuss the latest issues and Gather to amend the necessary laws.

Wang Pengji, a member of the NPC, embarked on an educational project on blockchain and cryptocurrency in China, as well as the potential for a state-run digital asset trading platform. However, a certified account will be required to allow trading of the proposed platform.

“A regulated and efficient cryptocurrency exchange platform, in collaboration with the People’s Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC), will serve as the formal means of raising funds for firms and their (through) ISOs.” Excerpts from Wang Pengji’s presentation in two sessions to “hold on and gain capital appreciation”.

March towards a blockchain nation

Governments and central banks around the world have struggled to cope with the growing popularity of cryptocurrencies; But one thing is for sure, everyone has accepted the blockchain.

Despite the cryptocurrency crackdown, blockchain has been gaining popularity and acceptance at various levels. The Chinese government has been supporting blockchain initiatives and adopting the technology. In fact, the People’s Bank of China (PBOC) is working on digital currency and has made mock transactions with several commercial banks in the country. It is not yet certain that digital currency will be decentralized and will provide features of cryptocurrency such as ignorance and immutability. The last thing China wants is anonymity in their country, so it would be no surprise if it turns out to be just the digital Chinese yuan. However, created as a close alternative to the Chinese yuan, the digital currency will be subject to existing monetary policy and legislation.

Governor of the People’s Bank of China, Zhou Jiachuan. Source: CNBC

“Lots of cryptocurrency explosives have grown that could have a significant negative impact on consumers and retail investors. We (cryptocurrency) do not like products that use the huge opportunity for speculation that gives people the illusion of getting rich overnight” Zhou Xiaochuan interview.

In a media appearance on Friday, March 20, Zhou Jiachuan, governor of the People’s Bank of China, criticized cryptocurrency projects that have gained momentum in the crypto-boom of speculation on cash and energy markets. He further mentioned that the development of digital currency is ‘technically inevitable’.

At the regional level, many Chinese cities are running blockchain initiatives to promote growth in their regions. Hangzhou, which has a reputation for being Alibaba’s headquarters, said in 2013 that blockchain technology was identified as one of the city’s top priorities. The local government of Chengdu city has also been offered to build an incubation center to adopt blockchain technology for the city’s financial services.

Tencent and Alibaba have also partnered with blockchain companies or started their own projects. Blockchain companies such as Vekchen have also entered into multiple partnerships with Chinese companies to increase transparency in the supply chain in China.

All sources indicate that China is moving towards a blockchain nation. China has always had an open mindset towards emerging technologies such as mobile payments and artificial intelligence. From now on, there is no doubt that China will be the first blockchain-enabled country. Will we see the Chinese government fall behind and allow its citizens to trade again? Perhaps, when the market has matured and is less volatile, certainly not in 2018.