China’s latest cryptocurrency crackdown in context
Surging markets and related developments like the PBOC national digital currency necessitated a new wave of regulations.
Cryptocurrency markets are fretting again in the wake of a new crackdown on cryptocurrency trading in China.
This may come as a surprise to all those who thought cryptocurrency trading was already banned in China. As such, it's worth contextualising the latest cryptocurrency trading ban as part of China's wider efforts to crack down on cryptocurrency speculation since 2017, and its more recent efforts to embrace blockchain technology without giving rise to a new wave of speculative mania.
Here's a brief history of the last two years of China's "cryptocurrency bans" next to Bitcoin prices.
From left to right:
- September 2017: China shutters cryptocurrency exchanges, including the biggest in China, in response to ICO mania and rampant cryptocurrency scams. This inadvertently creates a diaspora of offshore exchanges with Chinese customers during the big 2017 boom.
- January 2018: Chinese officials say Bitcoin and cryptocurrency trading will still be banned.
- February 2018: Chinese officials say the crypto ban is still coming and those offshore exchanges will be shuttered.
- August 2018: The cryptocurrency trading ban, as it were, eventuates and exchanges are shuttered.
- January 2019: A new set of digital asset regulations targets actual cryptocurrencies and blockchain applications, rather than just exchanges.
- October 2019: Xi Jinping describes blockchain as a foundational technology for the future, inadvertently causing Bitcoin and some Chinese cryptocurrency prices to spike. Chinese regulators observe a rise in local crypto activity and think to themselves "dang, we didn't ban cryptocurrency trading hard enough the first time."
- November 2019: The new cryptocurrency ban arrives. More exchanges are shuttered, some arrests are made and markets plummet again.
The latest cryptocurrency crackdown was a direct response to the trading surge that accompanied the pro-blockchain push in October, which was essentially a realisation that there were still too many cryptocurrency gateways accessible to residents of China, and that scammers were still willing and able to jump on the cryptocurrency and blockchain bandwagon whenever it heats up, according to CCTV.
Pro-blockchain proclamations, and related initiatives such as the announcement of the People's Bank of China (PBOC) national digital currency, create fertile ground for scammers, such as frauds that have falsely claimed to be endorsed by the PBOC.
Cryptocurrency exchanges often find themselves at the centre of this as they can, either wittingly or unwittingly, serve as vectors for these scams by offering places where those coins can be bought, sold and manipulated to dupe unwary speculators.
In this way, the latest crackdown is both a continuation of the old efforts from 2017 as well as a new wave that aims to curb the incidence of scams and speculation as China moves to embrace blockchain technology.
"My general feeling [is that] this time is much less intense than 2017," says Primitive Ventures founding member and cryptocurrency oracle Dovey Wan.
The "blockchain is not equal to virtual currency" mantra, per CCTV, may not strictly be a reflection of China's "blockchain not Bitcoin" attitudes. It could also be a consumer education effort to help prevent people from succumbing to crypto scams.
The USA is quietly going through a very similar process, but more quietly.
The number of crypto exchanges serving US customers is shrinking fast. Throw a dart at a random large cryptocurrency exchange, and you'll probably hit a platform that has banned US traders. And on the anti-fraud front, many of the platforms remaining in the US have dutifully tried to delist coins that could be classified as securities.
The key points of the latest wave of Chinese cryptocurrency regulations, according to Dovey Wan, are much like a mirror of the USA's crypto exchange scene: cracking down on offshore exchanges serving locals, banning unregistered ICOs (and offshoots like IEOs, unlicensed security tokens, etc) and warning the general public of the risks posed by crypto.
Disclosure: The author holds BNB and BTC at the time of writing.