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Crypto in Conflicts: China Could Be the Next Black Swan for Industry

11 March 2022 13:10, UTC
Oladotun Ayotomiwa

As the cryptocurrency markets became very active due to the escalation of the Russian-Ukrainian conflict, traders have identified a new possible source of contention – China and Taiwan. Reports that a Chinese plane had intruded into Taiwanese airspace have sparked speculation about whether the country could become the "next Ukraine." Taiwanese President Tsai Ing-wen also urged the island to beef up security in light of the Ukrainian crisis.

What can happen to crypto on a global scale?

Cryptocurrency, like most financial markets, is vulnerable to geopolitical tensions, as evidenced by its response to the Ukrainian crisis. The volatility caused by the war wiped $400 billion off the market this month. Taiwan is also the largest player in the global semiconductor market. Any disruption to supply from the country will have far-reaching implications for the cryptocurrency mining industry. For example, a shortage of chips that began in 2020 has dramatically increased the price of graphics cards, a key component of cryptocurrency mining.

Could a conflict in Ukraine be a trigger for similar events in Asia?

Many analytics said the West's lackluster response to Russia's invasion of Ukraine could spur China to take similar action against Taiwan. Indeed, while the West imposed sanctions on Russia, they avoided blocking the country from the global financial system. The main oil exports from Russia to Europe also remain intact. Last week, British Prime Minister Boris Johnson warned that the lack of Western support for Ukraine could set a dangerous precedent and pose a potential threat to Taiwan. China, which considers Taiwan its own territory, recently declared that the country is "not Ukraine" and has always been an integral part of China. Taiwan strongly opposed this claim.

What happens with crypto in China right now?

China's Supreme Court toughened its stance on cryptocurrencies after listing them as illegal fundraising methods. The court's decision was already expected following statements from the court, the People's Bank of China and other high-ranking government agencies at the end of 2021. Under the new interpretation, which comes into effect on March 1, individuals illegally dealing in cryptocurrencies can be fined up to 500,000 yuan ($79,000) and could be sentenced to ten years in prison.

A new, legally enforceable view associated with cryptocurrencies has emerged following many government decisions against the technology. The crypto mining ban has been followed by a real hunt for illegal activities in the crypto space, prompting much of China's mining power to jump ship into less dangerous waters. Under the new legislation, suspects will be prosecuted under Article 176 of China's criminal law, which provides for three to 10 years in prison and fines ranging from 50,000 yuan ($7,900) to 500,000 yuan ($79,000). ) for crimes involving large sums of money. Less serious crimes will be prosecuted with up to three years in prison and fines ranging from 20,000 yuan ($3,160) to 200,000 yuan ($31,600).

Critically, the legislation refers to an extremely broad definition of “cryptocurrency transactions.” This means that virtually every movement related to cryptocurrencies can fall under this term, since transactions are required in almost all activities related to cryptocurrencies. The revised understanding of cryptocurrencies aims to “punish illegal fundraising crimes in accordance with the law and maintain national financial security and stability.”