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Cryptocurrency Discussions in China: Government and Public Do Not Stand Together

Regulation
Denis Goncharenko

The crypto-related discussion has been going on for quite some time already, but there is still no agreement on what is the advantage of its use, this is why a lot of countries have different regulations and frameworks on its use. Some of these regulations are more restrictive, while some of them are not, and more and more countries have started to implement them as payment methods, especially bitcoin. The popularity of cryptocurrencies, whether they are altcoins or bitcoin, has especially increased during the covid pandemic, as people used them as an additional source of income. When the demand increases, the price of the coins increases in direct proportion.

As we have already mentioned, all the countries have their own regulations when it comes to cryptocurrencies and there is no regulatory body that would control their use. For example, developed countries such as Germany, Switzerland, the US, and Japan have made several important moves to implement bitcoin payments and now you can use them either to buy railway tickets or use them in fast-food restaurants. It was also the case several months ago when Tesla started accepting bitcoin payments, which increased its price, but after refusing to accept it anymore, the price was drastically reduced. The reason why there are so many different regulations on cryptocurrencies that differ from one country to another, first and foremost, due to their volatility.

China and cryptocurrencies

The Chinese government was always skeptical when it came to cryptocurrencies and their use in the country. There was a time, in 2017 when they even had banned crypto activities, but the advancement of blockchain technology made the industry live again in 2019. Other than the fact that blockchain is used to power cryptocurrencies, it is also used for various purposes, this is why it is very difficult to stop the actions of the distributed ledger technology. One of the main reasons for forbidding crypto-transactions was that due to the fact that blockchain was ensuring the anonymity of transactions, it was impossible for the government to track where the capital was flowing to.

Restrictions

In the middle of May 2021, three major financial institutions in China had made a joint statement about the dangers that were related to cryptocurrency transactions which were directly growing the financial risks. One of the main reasons for that was mentioned to be the latest volatility of the coins, that the price declined by almost 50 %, that was risking the people’s property and deterring the normal financial and economical development. Because of this fluctuation, 480 000 Chinese citizens had liquidated their crypto assets. After this, the Central Bank of China supported the joint statement of the three above-mentioned financial institutions and prohibited the companies from executing any transactions related to cryptocurrencies. According to the official statement, the restrictions will help people to protect themselves from any kind of financial speculations, which they believe to be happening in the crypto industry.

We can see the similarities between those actions and restrictions that took place between 2013-2017 in China. The Chinese Central Bank had issued a warning for the financial companies not to execute any kind of financial transactions, which were crypto-related and the initial coin offering was declared to be illegal. People were restricted in their actions, meaning that they could not make transactions inside the country, but abroad they were not restricted. Thus the popularity of cryptocurrencies and the demand for them has not affected the same way as the government and other officials were planning to.

Alternative to crypto in China

The numbers, which directly show that the crypto-industry was quite active during this whole time, $459 billion annual transactions, more than 5000 P2P lenders, make us think that this whole crypto-related regulation was more speculations and rumors than just the matter of economics.

Another concern that was raised about crypto-activities was due to the mining process because it consumes high-level energy. Surprisingly or not, China is occupying 65 % of global bitcoin mining every month. The energy that bitcoin mining requires is more than the annual energy consumption of Argentina or even Switzerland. China has made official promises to reduce its carbon emissions but the changes in terms of bitcoin mining are not visible so far.

The latest ban did not stop people from buying cryptocurrencies and they are buying them to use as a payment method. The government had even an idea to implement the digital version of their fiat currency, as well as it is announced by the US Federal Reserve to issue the digital version of USD, however, it is highly unlikely to replace the cryptocurrency, especially bitcoin. The main advantage of digital currencies is that they are not existing and are not regulated by any authority, which at the same time works as a disadvantage because a lot of people are trying to stay away from them due to the increased cases of scams and money laundering.


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