On September 24, 2021, government authorities, including the People’s Bank of China, issued a notice in unison that cryptocurrency is no longer a legal tender within Chinese territorial boundaries. To add, all forms of cryptocurrency transactions local and those held in offshore accounts are illegal.
China has banned all the domestic trading of Bitcoin and other cryptocurrencies, including Litecoin and Ethereum. The authorities stated that China-based employees of offshore crypto exchanges or any companies providing services to them would be investigated and prosecuted. Chinese citizens are still allowed to trade cryptocurrencies from overseas platforms, but they have to do so abroad.
Roy is among a small minority of Chinese still willing to take the plunge. In the wake of Beijing’s ban on initial coin offerings in September and its decision to shutter all cryptocurrency trading exchanges, many Chinese investors have been packing up their digital wallets and heading for the exit. But Roy (he only wanted his surname to be used) is not one of them. “I’m not in a rush,” said the former project manager at a state-owned company, who has been investing in digital coins for some time.
The Chinese government’s crackdown on cryptocurrencies affects the global market and may directly contribute to the recent fall in bitcoin prices. One Beijing-based investor said: “He already received notice from his cryptocurrency exchange that his account will be shut by the end of the year. But he said: “I’m now looking at opening an account on a decentralised exchange.”
The National Development and Reform Commission (NDRC) circular is the strongest signal that the Chinese government has decided to shut down cryptocurrency exchanges and miners in China. It covers all aspects of these activities, including mining farms, trading platforms, wallets, and even ICOs. Given China’s size and importance in the global cryptocurrency economy, these moves will have huge effects worldwide.
Even more, China continues to take the lead in enacting stricter regulations on its citizens’ use of cryptocurrency. Many experts agree that this move is designed to hamper the efforts of illegal cryptocurrency miners operating within China’s borders. The crackdown comes when China is also embroiled in an online censorship scandal designed to make the Chinese internet appear less filtered than it actually is.
China joins the list of other countries that have already taken bold action to ban the use of crypto within their borders: Egypt, Indonesia, and Nepal. Having one of the biggest cryptocurrency markets, China is now divided into two camps. One camp favours banning the purchase and sale of cryptocurrencies, prohibiting bank transactions, including bitcoin transactions, and blocking all sites related to virtual currencies; the other camp has criticised the ban as rash action. The move saw a fall in the Bitcoin prices by circa $2,000.
Background of the Crypto Restrictions in China
If you wanted to buy cryptocurrency in China before 2017, you either had to go through an intermediary or leave the country. This created a huge demand for cryptocurrency mining equipment, which led to a surge in mining activity in the country. This surge in mining activity caused the price of bitcoin to skyrocket, making it an attractive target for hackers exposing miners to numerous cryptocurrency scams.
In 2017, China shut down local crypto transactions. This came when China accounted for close to 90 percent of the world’s trade union. With 2019 fast approaching, cryptocurrency was officially banned in the region. PBOC blocked access to all forms of cryptocurrency exchanges, be it foreign or domestic. However, Initial Coin Offering websites proceeded with foreign online exchanges.
2021 however, the industry saw the government double down its crackdown.
What are the Global Concerns Mirrored?
The emerging cryptocurrencies function as user-to-user networks without reliance on central authorities, such as governments and typical financial institutions. The Chinese government added that the rise of bitcoin mining has led to increased fraud, pyramid schemes and other illegal activities. Hence, the ban is necessary to maintain social stability and the country’s national security.
The daily trade volume of the Chinese Bitcoin market dropped by about 1/5 (about 105,000 BTC to 19,000 BTC) after the announcement of the Chinese Bitcoin ban on September 24. The trading volume of Litecoin also declined by about 2/3 (about 82,000 LTC to 30,000 LTC). From September 25 to 27th, Huobi and OKCoin (large Bitcoin exchanges in China) reversed their gains. Given the large scale, it seems that this market move is due to policy news.
China has banned cryptocurrency exchanges and ICOs after weeks of scrutiny and speculation. One of the largest exchange groups in the country has shut down, and other platforms have announced they will follow suit. Analysts say this is a temporary move by Beijing to remove Ethereum and other cryptocurrencies from circulation to cool speculation and protect the digital Yuan at an electrical currency level.
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