Will China Make Crypto Legal
With the announcement of the ban on all cryptocurrency transactions, the Chinese government will focus its efforts on cracking down on mining and all cryptocurrency-related operations, with the aim of prosecuting all parties involved. Cryptocurrency proponents should learn the right lessons from China`s actions. Instead of resisting regulation and oversight or pretending that technology allows industry to monitor itself, they should work with governments and regulators to develop effective regulation. In return, the industry will benefit from greater legitimacy and stability. Fluctuations often affect the global price of cryptocurrencies. « While crypto trading is not illegal, we don`t want to waste our time arguing with banks because they obviously think anything to do with crypto is illegal, » the person said. « It is true that China does not want individuals to trade cryptos. But this is never written in a formal document, » a person associated with China`s crypto industry told Cointelegraph. China had previously banned initial coin offerings, the cryptocurrency equivalent of companies that go public with shares.
It then took steps to restrict how Chinese financial institutions deal with cryptocurrencies and crypto assets. The last step is much broader. All domestic cryptocurrency transactions are now banned. In principle, such transactions can be carried out without the direct knowledge of the government. But few Chinese citizens or financial institutions are likely to risk the wrath of the government. But Friday`s announcement is the clearest indication yet that China wants to stop cryptocurrency trading in all its forms. Believing that the blind and disorderly development of virtual currency has a negative impact on promoting high-quality economic and social development, energy conservation and reducing emissions, which could jeopardize carbon neutrality goals, in addition to previous crackdown, the recent NDRC circular stressed that investments in new cryptocurrency mining projects should be banned; Local governments should redouble their efforts to phase out existing projects and set a reasonable timeline and path to eliminate these projects. Despite all these deep flaws, the blockchain technology that underpins Bitcoin could actually have considerable advantages. The technology is already being used in other areas of finance. Soon it will be possible to carry out a wide range of transactions, even the purchase of a house or car, without traditional intermediaries such as lawyers and real estate agents.
In addition, the advent of cryptocurrencies has prompted central banks to design digital versions of their own fiat currencies. China has already initiated such processes. This is also true for Japan and Sweden, and many other countries are planning to do so soon. Some governments that have banned crypto have said that cryptocurrencies are used to funnel money to illicit sources, arguing that the rise of crypto could destabilize their financial systems. While not all governments ban crypto, many are exploring how digital currencies can be regulated, including in the U.S. Gary Gensler, chairman of the Securities and Exchange Commission, has called crypto « the Wild West » and said he wants to push through more regulation for digital currencies. Gensler hired a senior cryptocurrency consultant last week. The world`s largest crypto company, Binance, has been blocked in China since 2017.
Crypto exchange companies originating from China, such as OKEz and Huobi, are likely to be the hardest hit as they still have a few users in China. Huobi Global, a China-based cryptocurrency exchange, has said it will gradually close accounts in mainland China by December 31, 2021. Experts believe that major Ethereum miners, Bitcoin miners and China-based exchanges are being moved overseas to circumvent regulations. Nearly 900 years ago, the Chinese government of the Song Dynasty, then the world`s most advanced civilization, issued the world`s first centralized paper money. One hundred years later, when Marco Polo discovered « treebark » money that generally circulated in the Mongol Empire during the Yuan dynasty, he experienced a financial system with efficient long-distance transactions and a central banking authority with the full confidence of the people. Today, the world is on the cusp of another technological revolution in the way people trade. Once again, China is at the forefront, paving the way from cash to cryptocurrency with a new central bank digital currency (CBDC), the e-CNY, commonly known as the digital yuan. Although the US dollar remains the dominant fiat currency in the world, an analysis of the geopolitics surrounding the battle for monetary hegemony shows that China`s digital yuan will pose a serious challenge to the dollar`s status quo in the 21st century. Some U.S.-listed mining companies fell after the announcement. Riot Blockchain (RIOT. O), digital bit (BTBT.
O) and Marathon Digital (MARA. O) fell between 2.5% and five percent, while San Francisco-based crypto exchange Coinbase Global (COIN. O) decreased by more than one per cent. It is not immediately clear what impact large crypto companies will have in the future. In response, several cryptocurrency companies have announced that they will stop providing services to people in China and block Chinese IP addresses. The announcement also affects all Chinese citizens working for cryptocurrency companies overseas, as their roles are now illegal and can be prosecuted. The activity there is so popular that gamers have sometimes blamed the industry for a global shortage of powerful graphics cards that miners use to process cryptocurrencies. Financial institutions are prohibited from offering services for cryptocurrencies, including opening accounts, transferring money, and other activities that facilitate the use of cryptocurrencies. Internet companies and websites are also prohibited from offering payment services in cryptocurrencies. The advertising of crypto-currencies is also prohibited, with the monitoring of keywords related to them.
Despite the current shortcomings of China`s CBDC experiments, the U.S. may be too far behind in producing a viable competitor. After the digital yuan debuted on the international stage in March 2022, Biden issued an executive order to investigate a U.S. CBDC. Although the United States is a dominant player in the private cryptocurrency market, it has not seriously spent the last decade seriously researching and testing CBDCs like China has. There is hope, as early versions of a U.S. CBDC being developed in collaboration with MIT have proven to be more sophisticated than the digital yuan, which can process more than five times as many transactions per second. However, this technology is still far from being exchanged across borders. As the vice president of a Beijing-based cryptocurrency company, Ian Wittkop, writes, CBDCs are « a field of one » for now. In our post-pandemic world with trends such as e-commerce, social media, and remote work, it`s clear that the world is becoming increasingly digital.
A financial system dominated by CBDCs, and therefore by China, could become an inevitable reality. The prospect of households pouring their savings into crypto assets, leaving them vulnerable to the bursting of the speculative bubble, worries governments.