Preparing for the Cryptocurrency World: Chinese Edition

Over the past year, the cryptocurrency market has been hit hard by the Chinese government. The market took the hits like a warrior, but the combinations took their toll on many cryptocurrency investors. The market’s stellar performance in 2018 pales in comparison to its stellar 1,000 percent growth in 2017.

What happened?

The Chinese government has been taking measures to regulate cryptocurrency since 2013, but it’s nothing compared to what was enacted in 2017. (See this article for a detailed analysis of the Chinese government’s official announcement)

2017 was a landmark year for the cryptocurrency market with all the attention and growth it achieved. Extreme price volatility has forced the Central Bank to take more extreme measures, including banning Initial Coin Offerings (ICOs) and restricting domestic cryptocurrency exchanges. Shortly thereafter, mining plants in China were forced to close due to excessive electricity consumption. Many exchanges and factories moved overseas to avoid regulation but remained accessible to Chinese investors. Nevertheless, they never managed to escape from 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 extended its “Eagle Eye” to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of conducting transactions with foreign crypto exchanges and related activities are subject to measures ranging from limiting withdrawal limits to freezing accounts. There are even ongoing rumors among the Chinese community of tougher measures to be applied to overseas platforms that allow trading between Chinese investors.

“As for whether there will be further regulatory action, we have to wait for orders from higher authorities.” Excerpts from an interview with the group leader of the China Public Information Network Security Supervision Agency under the Ministry of Public Security, February 28


Imagine your child investing their savings in a digital product (in this case, cryptocurrency) whose authenticity and value they have no way to verify. He or she could get lucky and get rich, or lose everything when the crypto bubble bursts. Now scale that to millions of Chinese citizens and we’re talking billions of Chinese yuan.

The market is full of scams and pointless ICOs. (I’m sure you’ve heard the news about people sending coins to random addresses with the promise of doubling their investment and ICOs that just don’t make sense). Many ignorant investors are in it for the money and care less about the technology and innovation behind it. The value of many cryptocurrencies is derived from market speculation. During the crypto boom of 2017, participate in any ICO with a well-known advisor on board, a promising team, or decent hype, and you’ll be guaranteed at least 3x your investment.

A 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 report that almost 90% of ICOs are fraudulent or involve illegal fundraising. In my opinion, the Chinese government wants to make sure that cryptocurrency remains “controlled” and not too big to fail in the Chinese community. China is taking the right steps towards a safer, more regulated world of cryptocurrencies, albeit aggressive and controversial ones. In fact, it may be the country’s best move in decades.

Will China issue an ultimatum and make cryptocurrency illegal? I highly doubt it because it’s a pretty pointless thing to do. Currently, financial institutions are prohibited from holding any crypto-assets, while individuals are permitted but prohibited from conducting any form of trading.

A government cryptocurrency exchange?

At the annual “Two Sessions” (so-called because both major parties, the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPC) take part in a forum held in the first week of March), leaders gather to discuss recent issues and make necessary amendments to the law.

Wang Pengjie, a member of the NPCC, addressed the prospect of a state-owned digital asset trading platform and initiated educational projects on blockchain and cryptocurrency in China. However, the offered platform requires an authenticated account to allow trading.

“With the establishment of relevant regulations and the cooperation of the People’s Bank of China (PBoC) and the China Securities Regulatory Commission (CSRC), a regulated and efficient cryptocurrency exchange platform will serve as an official fundraising method for companies (through ICOs) and investors to store their digital assets and achieve increased of capital” Fragments of Wang Penjie’s presentation at two sessions.

March to the Blockchain Nation

Governments and central banks around the world are struggling to cope with the rise in popularity of cryptocurrencies; but one thing is for sure, everyone has adopted blockchain.

Despite the crackdown on cryptocurrency, blockchain is gaining popularity and adoption at various levels. The Chinese government supports blockchain initiatives and uses this technology. In fact, the People’s Bank of China (PBoC) has been working on a digital currency and conducting fictitious transactions with some of the country’s commercial banks. It is not yet confirmed whether the digital currency will be decentralized and offer cryptocurrency features such as anonymity and immutability. It wouldn’t be a surprise if it turns out to be just a digital Chinese yuan, given that anonymity is the last thing China wants in its country. However, a digital currency created as a close replacement for the Chinese yuan will be subject to existing monetary policies and laws.

The head of the People’s Bank of China, Zhou Xiaochuan. Source: CNBC

“Many cryptocurrencies have experienced a boom that can have a significant negative impact on consumers and retail investors. We don’t like (cryptocurrency) products that use huge opportunities for speculation, giving people the illusion of getting rich overnight” Excerpts from Zhou Xiaochuan’s Interview on Friday, March 9.

In a media speech on Friday, March 9, People’s Bank of China Governor Zhou Xiaochuan criticized cryptocurrency projects that used the crypto boom to raise money and fuel market speculation. He also noted that the development of digital currency is “technologically inevitable”

At the regional level, many Chinese cities are leading blockchain initiatives to promote growth in their region. Hangzhou, famous for being the headquarters of Alibaba, has announced blockchain technology as one of the city’s top priorities in 2018. The local government of Chengdu city has also been asked to build an incubation center to promote the adoption of blockchain technology in the country. financial services of the city.

Local conglomerates such as Tencent and Alibaba have also partnered with blockchain firms or initiated projects on their own. Blockchain firms such as VeChain have also secured many partnerships with Chinese firms to increase supply chain transparency in China.

All clues point to China working on a blockchain nation. China has always been open to new technologies such as mobile payments and artificial intelligence. Without a doubt, from now on, China will be the first country to use blockchain. Will we see the Chinese government back down and allow its citizens to trade again? Maybe when the market matures and is less volatile, but definitely not in 2018.