Preparing for the Cryptocurrency World: China Edition

In the past year, the cryptocurrency market has endured a series of heavy blows from the Chinese government. The market has taken hits like a warrior, but the combinations have taken their toll on many cryptocurrency investors. The market’s underperformance in 2018 pales in comparison to 2017’s stellar 1,000 percent gain.

That what happened?

The Chinese government has taken measures to regulate cryptocurrency since 2013, but nothing compared to what was imposed in 2017. (See this article for a detailed analysis of the official notice from the Chinese government)

2017 has been a busy year for the cryptocurrency market with all the attention and growth it has achieved. Extreme price volatility has forced the Central Bank to adopt more extreme measures, including banning initial coin offerings (ICOs) and cracking down on domestic cryptocurrency exchanges. Soon after, mining factories in China were forced to close, citing excessive electricity consumption. Many stock exchanges and factories have moved overseas to avoid regulations, but remain accessible to Chinese investors. However, they still do not manage to escape from the clutches of the Chinese dragon.

In the latest series of government efforts to monitor and ban cryptocurrency trading among Chinese investors, China has expanded its “Eagle Eye” to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of transacting with foreign crypto-exchanges and related activities are subject to measures ranging from restricting withdrawal limits to account freezes. There are even rumors among the Chinese community of more extreme measures to be applied to foreign platforms that allow trading among Chinese investors.

“As for whether there will be further regulatory measures, we will have to wait for orders from higher authorities. Excerpts from an interview with the team leader of China’s 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) that has no way to verify its authenticity and value. He or she could get lucky and strike it rich, or lose everything when the crypto-bubble bursts. Now expand 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 unreasonable investors are in it for the money and could 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, promising team or decent hype and you are guaranteed at least 3x of 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 nearly 90% of ICOs are fraudulent or involve illegal fundraising. In my opinion, the Chinese government wants to ensure that cryptocurrency remains ‘controlled’ and does not become too big to fail within the Chinese community. China is taking the right steps towards a safer, more regulated cryptocurrency world, albeit an aggressive and controversial one. In fact, it might be the best move the country has made in decades.

Will China issue an ultimatum and make cryptocurrency illegal? I 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 forms of trading.

A government cryptocurrency exchange?

At the annual “Two Sessions” (named because the two main parties – the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) participate in the forum)held in the first week of March), leaders gather to discuss the latest issues and made the necessary changes to the law.

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

“With the establishment of related 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 would serve as a formal way for companies to raise funds (through ICOs) and investors to retain their digital assets and achieve capital appreciation” Presented by Wang Pengjie in two sessions.

March to Blockchain Nation

Governments and central banks around the world have struggled to cope with the growing popularity of cryptocurrencies; but one thing is for sure, everyone has embraced blockchain.

Despite the crackdown on cryptocurrencies, blockchain is gaining popularity and acceptance at various levels. The Chinese government supports blockchain initiatives and embraces the technology. In fact, the People’s Bank of China (PBoC) is working on digital currency and conducting fraudulent transactions with some of the country’s commercial banks. It has not yet been 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 since anonymity is the last thing China wants in its country. However, created as a close replacement for the Chinese yuan, the digital currency will be subject to existing monetary policies and laws.

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

“Many cryptocurrencies have experienced explosive growth which can bring a significant negative impact on consumers and retail investors. We do not like products (cryptocurrencies) that use a huge opportunity for speculation that give people the illusion of getting rich overnight” Extract from Zhou Xiaochuan interview on Friday, 9 March.

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

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

Local conglomerates such as Tencent and Alibaba have also partnered with blockchain firms or launched projects of their own. Blockchain firms such as VeChain have also secured multiple partnerships with Chinese firms to improve supply chain transparency in China.

All clues point to the fact that China is working on a blockchain nation. China has always had an open mentality towards new technologies such as mobile payments and artificial intelligence. From now on, no doubt China will be the first blockchain-enabled country. Will we see the Chinese government back down and let its citizens trade again? Probably, when the market matures and becomes less volatile, but definitely not in 2018.