China’s central bank issued an official document illustrating harsh measures with broad crypto suppression. These measures include ramped systems to monitor crypto transactions; some crypto holders in China and Hong Kong have struggled to find a way to protect their bitcoin and other tokens. As investors processed the news, Bitcoin and Ether fell to 6% and 10% in broader sales.
“I got hundreds of text messages, emails, and direct messages from crypto holders from China. They are seeking solutions to obtain and preserve their cryptocurrency assets in forex markets and cold wallets,” David Lesperance, a Toronto-based attorney, told CNBC.
According to Lesperance, the step is an effort to “revoke” digital currencies, preventing their owners from legally dealing with them. “I think that, since the Chinese government cannot intervene, they have chosen to propose to converting the volatile currency to e-yuan at a future price,” he continued. “This is a Chinese government effort to remove all new competitors for the next digital yuan,” he continued.
All cryptocurrency-related transactions in China, including those supplied by overseas exchanges, are unlawful, according to the People’s Bank of China’s website. Trading, order matching, token issuance, and digital currency variants are all strictly prohibited, per the PBOC.
The rule will apply to over-the-counter platforms which will allow potential Chinese consumers to swap fiat money for cryptocurrency tokens. According to a spokeswoman for OKEx, the firm is investigating the issue and will inform CNBC once it has decided on the subsequent actions.
Some of Lesperance’s clients, he believes, are also concerned about their safety. “They’re worried about themselves personally because they believe the Chinese government quite informed of their previous crypto activities, and they don’t want to be the succeeding Jack Ma,” says Lesperance. On the other hand, the authoritarian government is prone to retaliating against the digital currency. Some third-party payment providers were given instructions to stop utilizing bitcoin by the country in 2013. Chinese authorities prohibited token selling in 2017 and pledged to continue attacking cryptocurrency trading in 2019China’s shutdown of its crypto mining business earlier this year resulted in half of the worldwide bitcoin network being black for a few months.
“The warning isn’t precisely new, and it’s not a change of policy,” said Boaz Sobrado, a fintech data analyst in London. However, ten agencies are involved in the crypto announcement, including essential departments like the Supreme People’s Procuratorate, the Supreme People’s Court, and the Ministry of Public Security display closer cooperation among the country’s top leadership. In addition, the administration of Foreign Exchange was also present, indicating that regulation in this area is becoming more aggressive.
Coordination Signs
You can see traces of early government collaboration in China. The PBOC paper dated September 15, and China’s National Development and Reform Commission produced a statement on September 3 that banned all crypto mining. On Friday, both were made public on official government forums, implying that all involved entities worked together.
As stablecoins started to enter the terminology of Chinese regulators, this letter mentions bitcoin, Ethereum, and tether, unlike previous government pronouncements that referred to cryptocurrencies under the exact umbrella phrase.
Mark Peikin, CEO of Bespoke Growth Partners, believes that “the Chinese crypto investors would have a substantial spillover effect, giving rise to a prompt risk-off trade in the U.S. cryptocurrency market.” “Many Chinese investors, who have turned a silent treatment to the Chinese government’s biggest and largest onslaught on cryptocurrency trading in recent months may no longer be belligerent,” Peikin told CNBC. With the Chinese government’s harsh decision in place, foreign buyers, have attempted to avoid it by purchasing only through domestic OTC platforms and later using only banking institutions to transfer yuan in an agreement,” Pelkin added.
However, Peikin believes that as the PBOC’s ability to track crypto transactions improves – and with the recent mandate that fintech companies, including the Ant Group, refrain from providing crypto-related services – this workaround is utilized by Chinese investors becomes a narrower tunnel.
The PBOC’s remark added to other information out of China has roiled cryptocurrency markets. For example, concerns in China were raised regarding a housing bubble; following a financial issue at property developer Evergrande. This panic spread throughout the global economy, causing numerous cryptocurrencies to drop.
However, not everyone believes the crypto market’s downturn will persist. Sobrado thinks the market overreacts to the PBOC’s warning, considering that much of China’s exchange volume is decentralized and peer-to-peer; this is becoming the most telling statistic of crypto adoption. While peer-to-peer token exchange does not avert intense scrutiny, Sobrado asserts that these exchanges are more difficult to locate. Lesperance also points out that because cryptos are protected against sovereign risk, the announcement may enhance their business case as an asset class.
Nevertheless, the most pressing question is whether Beijing’s recent instruction is effective. “In the crypto world, the running joke is that China has prohibited crypto dozens of times,” Sobrado added. “I’m ready to bet in a year from now, people from China will be buying and selling bitcoin.”