China’s crypto industry is gone? Beijing’s crackdown keeps sending shockwaves
China was the biggest market for ICOs, accounting for over 90 percent of the market, according to a report by China Money Network. Last week, China’s central bank and securities regulator issued a joint statement that the country would not tolerate any form of cryptocurrency trading. This has led to the closure of exchange websites that were previously on the brink of collapse. Other than preparing for a potential market shutdown, it is unclear what China will do to stop the damage caused by the country’s ongoing crypto crackdown.
The collapse of Bitcoin exchange Bitfinex and Tether has set off a chain reaction that is likely to have a profound impact on the cryptocurrency market. Having been the one of the world’s most important exchanges, Bitfinex had more than 120,000 users and handled more than 100,000 BTC transactions each day. According to reports, the firm has been losing money ever since it stopped USD withdrawals, and on Friday, it announced that it would stop providing services to new customers.
Since the beginning of the summer, a series of measures by Chinese authorities to curb cryptocurrency trading and mining have dominated the news cycle surrounding cryptocurrencies.
Whether it was a call for financial services firms to restrict cryptocurrency-related transactions or an order to shut down a cryptocurrency trading software provider, it is widely believed that Beijing’s initiatives and their impact have largely contributed to the recent market decline.
What is driving this new round of hostility, and how will it affect the country’s cryptocurrency space, which once accounted for about two-thirds of the world’s supply of digital assets? It also seems that everything that happens in China has a huge impact on other parts of the world, which doesn’t seem to be a negative thing.
Promotion of digital RMB
It is not hard to see that the increasing restrictions on trading and mining decentralized cryptocurrencies go hand in hand with the activation of the Chinese Central Bank’s (CBDC) digital currency project. Bundles of government-issued e-money have already found their way into the wallets of some 200,000 Chinese citizens selected by lot as part of tests of the electronic digital currency payment system. It seems that more extensive tests and large-scale introduction are planned in a few months’ time.
When it comes to the distribution of political or economic power, China’s leaders are not used to promoting pluralism and competition. To some extent, the country’s widespread cryptocurrency sector may have escaped scrutiny because it did not directly conflict with the government’s strategic plans, but that no longer seems to be the case.
Yu Xiong, professor of business intelligence and director of the Centre for Innovation and Commercialization at the University of Surrey, told Cointelegraph that China will not allow any currency to affect the yuan, and for that reason it cannot allow bitcoin (BTC) to grow too large. Xiong added:
China, like most other governments, wants to see the value of bitcoin grow in a manageable range. If bitcoin is approved as a currency, China [like many other countries] will face financial disaster. China now has its own CBDC, which can be controlled by the central bank. Thus, the government does not need to promote decentralized cryptocurrencies.
With major Chinese banks, such as the Agricultural Bank of China, jumping on the bandwagon and scaling back their cryptocurrency activities for consumers and businesses, the coordinated action looks more like a stranglehold than a lack of encouragement. Both cryptocurrency companies and ordinary users are facing serious consequences of stricter government policies.
Carrying the main load
The authorities’ crusade against China’s cryptocurrency industry has implications for all major stakeholders: As financial service providers wake up to find their bank accounts frozen, miners in several key provinces are receiving eviction notices. The departure of the company that ran the country’s oldest bitcoin exchange clearly shows the depth of the crisis.
Yifan He, CEO of Hong Kong-based blockchain company Red Date Technology, told Cointelegraph that the entire crypto industry in China has officially disappeared. He believes that although trade has always existed in the region and mining has been strongly supported by some local authorities, the current prohibitive turn in government policy will deal a blow to both activities from which they are unlikely to recover quickly:
Once banks and payment service providers completely ban cryptocurrency trading, it will be very difficult for ordinary people to use RMB to buy cryptocurrencies. In China, cryptocurrency trading has already dropped significantly as all mining has stopped. Ordinary users can no longer inject fresh money into transactions, and almost all major exchanges have banned leverage and margin services for Chinese citizens.
According to He, some cryptocurrency exchanges can still survive, but will have to go underground. This would essentially end China’s dominance in BTC mining, as miners would either have to shut down completely or relocate and be regulated in other countries.
What we are witnessing today appears to be nothing less than a dismantling of the entire crypto currency industry in a country that until recently was a major center for mining and trade.
Most ordinary Chinese traders are likely to find the new rules unaffordable and go out of business. Mining companies have the choice to leave or to settle in another country. Those who value the simplicity of digital asset transactions will soon have a centralized alternative in the form of a government-backed CBDC.
Suppressing the cryptocurrency industry on such a large scale will inevitably have a global impact. With most of China’s mining capacity gone, the world hashish map will have to be drastically rearranged, and new mining powerhouses will emerge in other countries to fill the void. At the same time, in the long run, not only businesses but also ordinary users will be affected by the fact that cryptocurrencies are starting to circulate in some parts of the world, which regulators will respond to.
It is also possible that the loss of Chinese trading activity will be a factor that will affect the global cryptocurrency market for a long time. Building and sustaining a new bull run similar to that of early 2021, a process that requires a steady influx of new entrants, may become more difficult as China is no longer able to provide the user base growth it once did. The rest of the world will have to work very hard to make up for China’s departure.
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