Preparing for the World of Cryptocurrency: China Edition

Over the past year, the cryptocurrency market has taken a number of hits from the Chinese government. The market took the hits like a fighter, but the combinations took their toll on many crypto investors. The market’s lackluster performance in 2018 pales in comparison to its 1,000-percent gains in 2017.

What happened?

Since 2013, the Chinese government has taken measures to regulate cryptocurrency, but nothing compared to those implemented in 2017. (See this article for a detailed analysis of the official notice issued by the Chinese government)

2017 has been a banner year for the cryptocurrency market with all the attention and growth it has received. Extreme price volatility has forced the central bank to take more extreme measures, including a ban on initial coin offerings (ICOs) and restrictions on local cryptocurrency exchanges. Soon, mining factories in China were forced to close due to excessive electricity consumption. Many exchanges and factories moved overseas to avoid the regulations, but remained accessible to Chinese investors. Despite this, they still cannot escape the claws of the Chinese Dragon.

In the latest government-led effort 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 and related activities with foreign cryptocurrencies 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 imposed on foreign platforms that allow trading between 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 the Public Information Network Security Supervision Agency under China’s Ministry of Public Security, February 28


Imagine investing your child’s savings in a digital product (in this case cryptocurrency) with no way to verify its authenticity and value. He could get lucky and strike it rich, or lose it all when his cryptocurrency explodes. Now add that to millions of Chinese citizens and we’re talking billions of Chinese Yuan.

The market is full of scams and meaningless ICOs. (I’m sure you’ve heard of people sending coins to random addresses with the promise of doubling their investment and their ICOs, which just makes no sense). Many novice investors are in it for the money and care less about the technology and innovation behind it. The value of many cryptocurrencies comes from market speculation. During the crypto-boom of 2017, participate in any ICO with either a famous advisor, promising team or decent hype and you are guaranteed at least 3X investment.

With the proliferation of ICOs, a lack of understanding of the firm and the technology behind it is a recipe for disaster. Members of the Central Bank report that almost 90% of ICOs are scams or related to illegal fundraising. In my opinion, the Chinese government wants to ensure that cryptocurrency remains “controllable” and not too big to fail within the Chinese community. Although aggressive and controversial, China is taking the right steps towards a safer, more regulated cryptocurrency world. In fact, it may be the best move the country has made in decades.

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

A State-Owned Cryptocurrency Exchange?

The annual “Two Sessions” (so called because the two main parties – the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) both attend a forum in the first week of March) to discuss recent issues and make necessary legislative changes gather for

Wang Pengjie, a member of the NPCC, has been engaged in the prospects of a state-run digital asset trading platform, and has also launched educational projects related to blockchain and cryptocurrency in China. However, the proposed platform will require a verified 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 way for companies to raise funds (ICOs) and investors to hold their digital assets and achieve capital appreciation” Excerpts from Wang Pengjie’s presentation in Two Sessions.

March to Blockchain Nation

Governments and central banks around the world are grappling with the growing popularity of cryptocurrencies; but one thing is for sure that everyone has adopted blockchain.

Despite cryptocurrency being hacked, blockchain is gaining popularity and adoption at varying levels. The Chinese government is supporting blockchain initiatives and embracing the technology. In fact, the People’s Bank of China (PBoC) is working on a digital currency and has conducted fraudulent transactions with some of the country’s commercial banks. It is yet to be confirmed whether the digital currency will be decentralized and offer the features of cryptocurrency such as anonymity and immutability. Given that anonymity is the last thing China wants in its own country, it wouldn’t be surprising if it turned out to be just a digital Chinese Yuan. However, the digital currency created as a close substitute for the Chinese Yuan will be subject to existing monetary policies and laws.

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

“Many cryptocurrencies have seen strong growth, which could have a significant negative impact on consumers and retail investors. We don’t like (cryptocurrency) products that take advantage of huge speculative opportunities that give people the illusion of getting rich overnight.” Zhou Xiaochuan interview on Friday, March 9.

In a media speech on Friday, March 9, People’s Bank of China Governor Zhou Xiaochuan criticized cryptocurrency projects for cashing in on the cryptocurrency boom and fueling market speculation. He also noted that the development of digital currency is “technologically inevitable.”

At the regional level, many Chinese cities are pushing blockchain initiatives to promote growth in their regions. Hangzhou, famous for being the headquarters of Alibaba, has declared that blockchain technology will be one of the city’s top priorities in 2018. In Chengdu, the local government has also been proposed to build an incubation center to promote the adoption of blockchain technology in the country. city ​​financial services.

Domestic conglomerates such as Tencent and Alibaba have also partnered with blockchain firms or launched projects on their own. Blockchain firms such as VeChain have also established numerous partnerships with Chinese firms to improve supply chain transparency in China.

All clues point to China working on a blockchain nation. China has always had an open mind to new technologies such as mobile payment and Artificial Intelligence. After that, China will undoubtedly be the first country to use blockchain. Will we see the Chinese government back down and allow its citizens to trade again? Perhaps when the market matures and is less volatile, but not in 2018.