As one of the largest economies in the world, China’s stance on cryptocurrencies has always had a profound impact on the cryptocurrency market. Still, China’s historical relationship with cryptocurrencies is complex. It requires an understanding of the reasons behind its notorious bans and an examination of the potential implications of lifting China’s ban.
With recent signs suggesting a potential shift in policy, the future of cryptocurrencies in China is at stake, promising significant repercussions for the industry worldwide.
China’s History of Banning Cryptocurrencies
China has a long history of imposing restrictions on cryptos, with the first attempt taking place in 2013 when the People’s Bank of China (PBC) issued rules prohibiting financial institutions from transacting in virtual currencies such as Bitcoin.
However, this did not make it illegal for Chinese citizens to buy, store or send cryptocurrencies. It just made accessing cryptocurrencies from exchanges more challenging.
This first ban was aimed at slowing down Bitcoin trading, as it had become so widespread that many businesses, including the country’s largest search engine, Baidu, began accepting it as payment.
In 2017, during the cryptocurrency bull market, Chinese officials imposed increased sanctions on cryptocurrency trading, focusing particularly on Initial Coin Offerings (ICOs).
ICOs, digital tokens meant to represent an ownership stake in a new crypto project, have seen a significant increase in trading.
However, many of these ICOs became scams due to lack of regulation. To curb the ICO craze, China banned all platforms offering ICOs. If an exchange sold ICOs, it had to return the money to investors.
China cracked down on cryptocurrencies in 2021
In 2021, China took the most severe measures in its history against cryptocurrencies. While Bitcoin hovers around $55,000, China’s State Council announced a formal ban on mining.
Soon after, the hasrate on the Bitcoin network fell 50% and the price of Bitcoin plummeted to about $30,000 in the following months.
Along with the ban on Bitcoin mining, China’s regulatory bodies banned all cryptocurrency transactions and trading.
It is also illegal for residents to send cryptocurrencies and for businesses and banks to accept cryptocurrencies such as Bitcoin and Ethereum.
Despite the ban, there are no specific policies against holding digital assets, so Chinese residents who already have cryptocurrencies in a wallet are not violating any current laws.
Why did China ban cryptocurrencies?
Several factors drove China’s decision to ban cryptocurrencies. These include:
- Consumer protection concerns due to crypto’s association with scams and money laundering.
- The unclear legal status of digital currencies.
- The potential for capital flight.
- The devaluation of the yuan.
- Environmental concerns due to Bitcoin’s high energy requirements.
- A desire to control central bank digital currencies (CBDCs) and metaverse projects.
In fact, China is actively working on an official CBDC known as the “digital yuan,” and cities like Shanghai have pledged billions to develop national metaverse projects.
China’s Bitcoin mining ban led to a significant decrease in hashing power on the Bitcoin blockchain. Many of China’s Bitcoin miners fled to countries that were friendlier to the industry.
However, Bitcoin’s total hashrate continued to rise in the months following the ban and, in January 2022, was significantly higher than before the Bitcoin ban in China.
It was also noted that mining activity in China appeared on the Bitcoin network in September 2021, suggesting that many Chinese mining pools still operate underground.
Is China lifting the ban on cryptocurrencies?
Despite strict restrictions, China’s cryptocurrency ban has not completely halted activity in the sector. Underground markets have sprung up as cryptocurrency enthusiasts in the country continue to find ways around the restrictions.
More recently, however, signs have suggested a possible shift in China’s stance towards cryptocurrencies.
In the latest development, there are indications that China might be softening its hardline stance on cryptocurrencies.
This news is substantial given that one of the most significant impacts on the market over the past two years came in 2021, when China issued its toughest measure yet against digital assets.
This crackdown was part of a broader effort to regulate the fintech sector. It was also in line with China’s ambition to introduce its own digital currency, the digital yuan.
The global community is closely watching the signs of a possible shift in China’s stance towards cryptocurrencies. However, the details of this change are still unclear, and it remains to be seen how these developments will play out.
It should be noted that even if China were to ease its restrictions, it would likely continue to exert tight control over the sector to ensure consumer protection, prevent potential financial risks, and maintain control over its own digital currency initiatives.
What will happen if China lifts the ban on cryptocurrencies?
If China were to lift its ban on cryptocurrencies, it would likely have a significant impact on the global cryptocurrency market.
As the world’s most populous country and one of the largest economies, China’s acceptance of cryptocurrencies could stimulate global demand, increase prices, and potentially lead to greater acceptance of digital currencies.
It could also pave the way for the return of mining activities to the country, which was once the world’s largest Bitcoin mining hub.
Binance CEO Changpeng Zhao maintains that lifting China’s ban is a “big deal.” The fact that CCTV (China Central Television) recently aired a news segment on crypto has caused a stir in Chinese-speaking communities.
JUST IN: 🇨🇳 China's Central Television network just broadcasted the news that Hong Kong is allowing retail investors to buy #bitcoin
— Bitcoin Magazine (@BitcoinMagazine) May 24, 2023
China is quietly allowing it again… 👀 pic.twitter.com/M2qy6ig7x0
Still, unwinding cryptocurrencies could also pose challenges. For example, it could lead to increased volatility in the cryptocurrency market.
In addition, it could lead to regulatory challenges as authorities grapple with consumer protection, money laundering and financial stability issues.
The possible lifting of the cryptocurrency ban in China is a development with significant implications for the global cryptocurrency market.
But until more concrete information is available, the true impact of this development remains to be seen.
Image by: Copyright: niphonsubsri
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