Over the past year, the cryptocurrency market took a number of heavy punches from the Chinese government. The marketplace took the hits like a warrior, but the combos have taken its toll in many cryptocurrency investors. The marketplace lackluster performance in 2018 pales in comparison to its stellar thousand-percent gains in 2017.
What has happened?
Since 2013, the Chinese government have taken measures to regulate cryptocurrency, but nothing in comparison to that which was enforced in 2017. (Check out this article for a detailed analysis of the official notice issued by the Chinese government)
2017 was a banner year for the cryptocurrency market with all the current attention and growth it has achieved. The extreme price volatility forced the Central bank to adopt more extreme measures, like the ban of initial coin offerings (ICOs) and clampdowns on domestic cryptocurrency exchanges. Immediately after, mining factories in China were forced to close down, citing excessive electricity consumption. Many exchanges and factories have relocated overseas in order to avoid regulations but remained accessible to Chinese investors. Nonetheless, they still neglect to escape the claws of the Chinese Dragon.
In the latest series of government-led efforts to monitor and ban cryptocurrency trading among Chinese investors, China extended its “Eagle Eye” to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of undertaking transactions with foreign crypto-exchanges and related activities are put through measures from limiting withdrawal limits to freezing of accounts. There have even been ongoing rumors on the list of Chinese community of more extreme measures to be enforced on foreign platforms that allow trading among Chinese investors.
“As for whether there will be further regulatory measures, we will have to await orders from the bigger authorities.” Excerpts from an interview with team leader of the China’s Public Information Network Security Supervision agency under the Ministry of Public Security, 28th February
WHY WHY WHY!?
Imagine your child investing his or her savings to invest in a digital product (in this case, cryptocurrency) that he / she has no way of verifying its authenticity and value. He / she could easily get lucky and strike it rich, or lose everything once the crypto-bubble burst. Now scale 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 have heard news of individuals sending coins to random addresses with the promise of doubling their investments and ICOs that simply don’t make sense). Many unsavvy investors come in it your money can buy and would care less concerning the technology and innovation behind it. The worthiness of many cryptocurrencies is derived from market speculation. During the crypto-boom in 2017, participate in any ICO with the famous advisor onboard, a promising team or a decent hype and you also are guaranteed at the very least 3X your investments.
A lack of understanding of the firm and the technology behind it, combined with the proliferation of ICOs, is a recipe for disaster. Members of the Central bank reports that almost 90% of the ICOs are fraudulent or involves illegal fundraising. In my opinion, the Chinese government wants to make sure that cryptocurrency remains ‘controllable’ and not too big to fail within the Chinese community. China is taking the right steps towards a safer, more regulated cryptocurrency world, albeit aggressive and controversial. In fact, it might be the very best move the country has taken in decades.
Will China issue an ultimatum and make cryptocurrency illegal? I highly doubt so since it is pretty pointless to do so. Currently, financial institutions are banned from holding any crypto assets while individuals are permitted to but are barred from undertaking any forms of trading.
A State-run Cryptocurrency Exchange?
At the annual “Two Sessions” (Named because two major parties- National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) both take part in the forumï¼held on the first week of March, leaders congregate to discuss concerning the latest issues and make necessary law amendments.
Wang Pengjie, a member of the NPCC dabbled in to the prospects of a state-run digital asset trading platform as well as initiate educational projects on blockchain and cryptocurrency in China. However, the proposed platform would need a authenticated account to permit trading.
“With the establishment of related regulations and the co-operation of the People’s Bank of China (PBoC) and China Securities Regulatory Commission(CSRC), a regulated and efficient cryptocurrency exchange platform would serve as a formal method for companies to improve funds (through ICOs) and investors to carry their digital assets and achieve capital appreciation” Excerpts of Wang Pengjie presentation at both Sessions.