Volatility is a natural facet of the speculative cryptocurrency market, wherein thousands of coins gain value through investor interest—developed through unstable factors like emotions and trends. Many governments have been wary about introducing digital money on a large scale, as instability can be destructive to both economies and the people involved in transactions. So while there hasn’t been a green light to “officially” use crypto for buying and selling, it’s an asset that’s tolerated by most of the world.
China’s government falls in the faction that isn’t enthusiastic about cryptocurrency, which, while decentralised, is still created by private institutions. Their lack of tolerance over coins has been an ongoing problem for the industry. In the last week of May 2021, Vice Premier Liu He echoed the need to crack down on cryptocurrency trading and mining in the country, prompting a massive sell-off that wiped billions off the exchanges—an event that has been well-documented by The Top Coins. Bitcoin (BTC) saw a $20,000 drop, Ethereum (ETH)’s value was cut in half by approximately 50%, and even Dogecoin (DOGE), which had been on a roll, hasn’t been able to break past $0.3 since the announcement.
China’s investors are used to the government interfering with their cryptocurrency trades. But Liu He is, so far, the most powerful person to speak against digital currencies. What are the implications of this move, and how will China and the world move forward with governments now actively stepping into and regulating the once lawless crypto zone?
China’s Shaky Relationship With Cryptocurrency
China and cryptocurrency go far back. The People’s Bank of China (PBoC) was one of the first agencies to declare digital currencies illegal, blocking all access and transactions through their financial system from 2009-2017. In 2013, when cryptocurrency began to emerge among enthusiasts, there were talks about Bitcoin prices being manipulated by Chinese traders who would short-sell BTC then buy massive amounts once they fell out of favour again—a process called ‘pump & dump.’
In 2017, the PBoC began allowing cryptocurrency exchanges to operate but still banned ICOs—a popular fundraising mechanism where companies ask for investments to issue their blockchain-backed tokens, often leading to a surge in share prices. It was done to protect Chinese investors from fraudulent schemes and risky ICOs.
In September of 2018, the government began taking more concrete steps by ordering Beijing-based bitcoin miners (BTMs) to cease operations after receiving complaints of excessive noise levels and pollution. Two months later, BTM operators were given an ultimatum: they must either stop mining or face closure and possible arrest if caught continuing their activities.
“Cryptocurrency is not legal tender of any country,” says Xu Zhusheng, Assistant Director at PBoC’s Legal Department and head of its Digital Currency Research Lab. “It can’t be circulated in the market as currency.”
A Futile Effort
Despite China’s numerous attempts to crack down on cryptocurrencies over the past decade, most of their warnings fell on deaf ears. The country still owned 65% of the Bitcoin mining hash rate and was home to two of the world’s largest mining pools. Despite heavy crackdowns on crypto use, it remains one of the top countries for Bitcoin trading, all thanks to third parties that continued to help miners and investors buy, sell, and trade their coins in the shadows. Crypto operated underground—through VPNs, international connections, and middle-men.
Beijing Gets Serious
Following Vice Premier Liu He’s announcement to crack down on cryptocurrency-related activities, Beijing was first to make a move, forcing some of the most influential players in the local crypto industry to fold. One of the largest exchanges, Huobi, suspended cryptocurrency trading and mining from new clients, stating that they’ll be focusing on international markets moving forward. Two of the largest mining pools have also backed down—BTC.TOP is no longer continuing its operations in China, while HashCow has suspended its services from new miners and stopped buying rigs.
While the crackdown at the height of the bull market seemed unprecedented, the government began making moves months ago. In mid-January, the government ordered Beijing’s three power grids to stop providing electricity for new Bitcoin mining operations. The announcement impacted thousands of miners who were already working in some lucrative mines outside the capital city—and it was just the beginning. A month later, on February 15 at midnight, authorities suspended trading on all cryptocurrency exchanges and blocked access to 124 websites that provided information about cryptocurrencies or offered trading services, such as hosting marketplaces or ICOs.
The subsequent crackdown has left many people scrambling to figure out what this means for China’s economy and its future stability within the global community. However, some investors remain unaffected—they’re continuing to support cryptocurrency and are investing through the shadows, albeit more cautiously and with more limited resources than before.
How is The Crackdown Affecting China & The World?
Huobi Mall was the first to demonstrate that shifting focus to overseas markets is possible for cryptocurrency businesses. Given the government’s power, it’s extremely risky to continue investing in coins, and notorious companies are particularly easier to catch than individuals.
A dwindling Chinese mining community means more opportunities for international Bitcoin miners, as there are less competitors to fight against. However, with less crypto interest among one of the world’s largest consumer groups, coin prices have been hard-hit—the market has yet to return to its bullish values from mid-April. And despite censorship and major efforts to shut down crypto businesses, many enthusiasts remain unfazed and are continuing business as usual—though there’s no certainty in how long they can keep up a facade.
The government has had a long history of limiting crypto use within the country, but this time, their approach to regulation seems more intense than ever before. While its long-term effects in China and the rest of the industry remains unclear, successful government intervention may send signals to the rest of the world. More likely than not, an era of regulations may wash upon the cryptocurrency shore—starting from Turkey’s recent ban that disallows residents to buy and sell goods and services with crypto.
However, crypto remains part of one of the world’s largest technology markets. It’s not likely for coins to be phased out of existence due to their influence in the metaverse—from helping countries like El Salvador with cross-border payments to introducing tokens that power blockchain technology. It’s also an asset class continuously gaining acceptance from financial institutions worldwide, including Goldman Sachs and PayPal. So while governments may start rolling out regulations, investors will likely not have to worry about a global phase-out any time soon.