Preparing for a Cryptocurrency World: China Edition

Over the past year, the cryptocurrency market took some heavy punches from the Chinese government. The market took the hits like a warrior, but the combinations have affected many cryptocurrency investors. The market’s poor performance in 2018 pales in comparison to 2017’s stellar 1,000 percent gains.

what happened

Since 2013, the Chinese government has taken steps to regulate cryptocurrency, but nothing compared to what was enacted in 2017. (See this article for a detailed analysis of the official statement issued by the Chinese government)

2017 was a busy year for the cryptocurrency market with all the attention and growth it received. Extreme price volatility forced the Central Bank to take more extreme measures, including a ban on initial coin offerings (ICOs) and restrictions on domestic crypto exchanges. Soon after, Chinese mining factories were forced to shut down, citing excessive electricity consumption. Many exchanges and factories have moved overseas to avoid regulation, but have remained accessible to Chinese investors. However, they still do not escape the clutches of the Chinese Dragon.

In the latest government-led efforts to monitor and ban cryptocurrency trading among Chinese investors, China rolled out “Eagle Eye” to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of transacting with foreign crypto exchanges and related activities face measures ranging from limiting withdrawal limits to account freezes. There have also been persistent rumors among the Chinese community of stricter measures to be imposed on foreign platforms that allow trading among Chinese investors.

“We will have to wait for orders from higher authorities to know whether there will be further regulatory measures.” Excerpts from an interview with the team leader of China’s Public Information Network Security Supervision Agency under the Ministry of Public Security, February 28.


Imagine your child investing their savings in a digital product (in this case, cryptocurrency) with no way to verify its authenticity and value. He could get lucky and get rich, or he could lose everything when the crypto bubble bursts. Now scale that up to millions of Chinese citizens and we are talking about millions of Chinese Yuan.

The market is full of scams and unnecessary ICOs. (I’m sure you’ve heard the news of people sending coins to random addresses and nonsensical ICOs with promises to double). Many unknown investors are in it for the money and could care less about the technology and innovation behind it. The value of many cryptocurrencies comes from market speculation. In the crypto boom of 2017, participate in any ICO with a famous advisor, a promising team or a decent hype and you are guaranteed at least 3X your investments.

A lack of understanding of the business and the technology behind it, coupled with the proliferation of ICOs, is a recipe for disaster. According to members of the Central Bank, almost 90% of ICOs are fraudulent or involve illegal fundraising. My guess is that the Chinese government wants to make sure that cryptocurrency remains “controllable” and not too big to fail in the Chinese community. China is taking the right steps towards a safer and more regulated cryptocurrency world, albeit aggressive and controversial. 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 doing that as it is quite pointless. Currently, financial institutions are prohibited from holding any crypto-asset while individuals have permission, but are prohibited from trading in any form.

A State Cryptocurrency Exchange?

The annual “Two Sessions” (the two main parties: the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) are both named because they participate in the forum held in the first week of March. meet to discuss the latest issues and make the necessary changes to the law.

NPCC member Wang Pengjie delved into the prospects of a state-owned digital asset trading platform, as well as launching educational projects on blockchain and cryptocurrency in China. However, the proposed platform would require an authenticated account to enable trading.

“With the establishment of related 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 would serve as a formal way for companies to raise funds (through ICOs) and investors for their digital assets. to achieve content and capital appreciation” Excerpts from Wang Pengjie’s presentation in both sessions.

March towards a Blockchain Nation

Governments and central banks around the world have struggled to deal with the growing popularity of cryptocurrencies; but one thing is certain, everyone has accepted the blockchain.

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

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

“Many cryptocurrencies have experienced explosive growth, which can have a huge negative impact on consumers and retail investors. We don’t like (cryptocurrency) products that take advantage of the huge opportunity for speculation that gives people the illusion of getting rich overnight” Zhou Xiaochuan interview on Friday, March 9 .

In a media appearance on Friday, March 9, the governor of the People’s Bank of China, Zhou Xiaochuan, criticized cryptocurrency projects that took advantage of the crypto boom to cash in and fuel market speculation. He also stated that the development of digital currency is “technologically inevitable”.

Regionally, many cities in China are promoting blockchain initiatives to promote growth in their region. Hangzhou, known for being home to Alibaba, has announced blockchain technology as one of the city’s top priorities in 2018. They have also proposed to the local government of Chengdu city to build an incubation center to promote the adoption of blockchain technology. city ​​financial services.

Local conglomerates Tencent and Alibaba have also formed partnerships with blockchain companies or started projects of their own. Blockchain companies like VeChain have also secured multiple partnerships with Chinese companies to improve supply chain transparency in China.

All signs point to China working towards a blockchain nation. China has always had an open mentality towards emerging technologies such as mobile payment and Artificial Intelligence. Going forward, China will undoubtedly be the first blockchain-enabled country. Will we see the Chinese government back down and allow citizens to trade again? Probably when the market matures and is less volatile but definitely not in 2018.