Preparing for the world of cryptocurrencies: an edition for China

Over the past year, the cryptocurrency market has endured a series of heavy blows by the Chinese government. The market received blows like a warrior, but the combinations took a toll on many cryptocurrency investors. The weak performance of the market in 2018 is fading compared to its stellar thousand percent gain in 2017.

That what happened?

The Chinese government has taken steps to regulate the cryptocurrency since 2013, but nothing compared to what was imposed in 2017 (See this article for a detailed analysis of the Chinese government’s official notification)

2017 was a full 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 a ban on initial coin offerings (ICOs) and a crackdown on domestic cryptocurrency exchanges. Shortly afterwards, mining plants in China were forced to close, citing excessive electricity consumption. Many stock exchanges and factories have moved abroad to evade regulations, but have remained available to Chinese investors. Regardless, they still fail to escape 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 conducting transactions with foreign cryptocurrencies and related activities are subject to measures ranging from withdrawal limits to account freezes. There are even rumors in the Chinese community about more extreme measures to be applied on foreign platforms that allow trade among Chinese investors.

“As for whether there will be further regulatory measures, we will have to wait for orders from higher bodies.” Excerpts from an interview with the team leader of the Chinese Public Information Network Security Supervision Agency at the Ministry of Public Security, February 28

WHY WHY WHY !?

Imagine your child investing his savings in a digital product (in this case, a cryptocurrency) for which there is no way to verify its authenticity and value. He or she may be lucky and enriched, or lose everything when the crypto-bubble bursts. Now spread that to millions of Chinese citizens and we are talking about billions of Chinese yuan.

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

The lack of understanding of the company 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 ensure that the cryptocurrency remains ‘controlled’ and is not too big to fail within the Chinese community. China is taking the right steps toward a safer, more orderly world of cryptocurrencies, albeit aggressive and controversial. In fact, it could be the best move the country has taken in decades.

Will China set an ultimatum and make cryptocurrency illegal? I doubt it because it’s pretty pointless to do. Currently, financial institutions are prohibited from holding any cryptocurrency, while individuals are allowed, but they are prohibited from conducting any form of trading.

State cryptocurrency exchange?

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

Wang Pengjie, a member of the NPCC, dealt with the perspective of the state platform for digital asset trading, 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 cooperation between the National Bank of China (PBoC) and the China Securities Regulatory Commission (CSRC), an organized and efficient cryptocurrency exchange platform would serve as a formal way for companies to raise funds (through ICOs) and investors to maintain their digital assets and achieve capital appreciation “Performs Wang Pengjie presentations in two sessions.

March to the blockchain nation

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

Despite the suppression of cryptocurrencies, blockchain is becoming increasingly popular and accepted 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 would not 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, created as a close replacement for the Chinese yuan, the digital currency will be subject to existing monetary policies and laws.

Governor of the National Bank of China, Zhou Xiaochuan. Source: CNBC

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

In a media appearance on Friday, March 9, the governor of the National Bank of China, Zhou Xiaochuan, criticized cryptocurrency projects that used the crypto-boom to monetize and encourage 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, known for being Alibaba’s headquarters, cited blockchain technology as one of the city’s top priorities in 2018. The Chengdu city government 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 established partnerships with blockchain firms or launched projects themselves. 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, without a doubt, China will be the first country with a blockchain enabled. Will we see the Chinese government withdraw and release its citizens to trade again? Probably when the market matures and becomes less volatile, but definitely not in 2018.