Preparing for the world of cryptocurrencies: Chinese edition


Last year, the cryptocurrency market took a series of heavy blows from the Chinese government. The market accepted the hits as a warrior, but the combinations took their impact on many cryptocurrency investors. The weak market results in 2018 are fading compared to their stellar thousand-percent profits in 2017.

What happened?

Since 2013, the Chinese government has taken steps to regulate the cryptocurrency, but nothing compared to that implemented in 2017 (See 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 attention and growth it has achieved. Extreme price volatility has forced the Central Bank to take more extreme measures, including a ban on initial coin offerings (ICOs) and price caps on domestic cryptocurrency exchanges. Shortly afterwards, mines in China were forced to close, citing excessive electricity consumption. Many stock exchanges and factories moved abroad to avoid regulation, but remained accessible to Chinese investors. However, they still have not managed to escape from the claws of the Chinese dragon.

In a recent series of government-led efforts to monitor and ban cryptocurrency trading among Chinese investors, China has expanded its Eagle Eye to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of conducting transactions with foreign cryptocurrencies and related activities are subject to measures ranging from limits on withdrawal limits to account freezing. There are even rumors among the Chinese community about more extreme measures to be imposed on foreign platforms that allow trade between Chinese investors.

“As for whether there will be additional regulatory measures, we will have to wait for orders from higher authorities.” Excerpts from an interview with the team leader of the Chinese Public Information Security Agency at the Ministry of Public Security, February 28


Imagine that your child is investing their savings to invest in a digital product (in this case a cryptocurrency) that there is no way to verify its authenticity and value. He or she can get lucky and make it rich, or lose everything when the crypto-bubble bursts. Now scale this up 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’ve heard news of people sending coins to random addresses with the promise of doubling their investments and ICOs that just don’t make sense). Many unreasonable investors are in it because of the money and would be less interested in the technology and innovation behind it. The value of many cryptocurrencies is derived from market speculation. During the crypto-boom in 2017, participate in any ICO or with a reputable advisor on board, with a promising team or with decent noise and you will get at least 3 times more investment.

The lack of understanding of the company and the technology behind it, combined with the proliferation of ICOs, is a recipe for disaster. Central Bank members report that almost 90% of ICOs are fraudulent or involve illegal fundraising. In my opinion, the Chinese government wants to ensure that the cryptocurrency remains “controllable” and is not too large to fail within the Chinese community. China is taking the right steps toward a safer, more regulated cryptocurrency world, albeit aggressive and controversial. In fact, this may be the best move the country has taken in decades.

Will China issue an ultimatum and make cryptocurrency illegal? I strongly doubt it, because it is pointless to do so. Financial institutions are currently prohibited from holding any crypto assets, while individuals are permitted but prohibited from engaging in any form of trading.

State cryptocurrency exchange?

At the annual “Two Sessions” (Named because the two main parties – the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) participate in the forum held in the first week of March, leaders gather to discuss the latest problems and make the necessary changes to the law.

Wang Penji, a member of the NPCC, got acquainted with the prospects for a state platform for trading digital assets, as well as to initiate educational projects for blockchain and cryptocurrency in China. However, the proposed platform will require a verified account to allow trading.

“With the establishment of the relevant regulations and the cooperation of the People’s Bank of China (PBoC) and the China Securities Regulatory Commission (CSRC), a regulated and effective platform for cryptocurrency exchange will serve as a formal way to raise funds from companies (through ICO) and investors to hold their digital assets and achieve capital appreciation “Excerpts from Wang Penji ‘s presentation at both sessions.

The march to a blockchain nation

Governments and central banks around the world are struggling to cope with the growing popularity of cryptocurrencies; but one thing is for sure, everyone has accepted the blockchain.

Despite the repression against cryptocurrencies, the blockchain is gaining popularity and acceptance at various levels. The Chinese government supports blockchain initiatives and embraces the technology. In fact, the People’s Bank of China (PBoC) is working on a digital currency and has conducted fraudulent transactions with some of the country’s commercial banks. It has not yet been confirmed whether the digital currency will be decentralized and offers cryptocurrency features such as anonymity and immutability. It would not be a surprise if it turns out to be just a digital Chinese yuan, given that anonymity is the last thing China wants in their country. However, created as a close substitute 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 are experiencing explosive growth that could have a significant negative impact on consumers and retail investors. We don’t like (cryptocurrency) products that use the huge opportunity for speculation, giving people the illusion of getting rich overnight.” Excerpts from Zhou Xiaochuan’s Interview on Friday, March 9th.

In a media statement Friday (March 9th), Chinese National Bank Governor Zhou Xiaochuan criticized cryptocurrency projects that took advantage of the crypto boom to make money and market speculation. He also noted that the development of the digital currency is “technologically inevitable”

At the regional level, many Chinese cities encourage blockchain initiatives to promote growth in their region. Hangzhou, known for being Alibaba’s headquarters, said blockchain technology is one of the city’s top priorities in 2018. The local government in Chengdu has also been asked to build an incubation center to promote the adoption of blockchain technology in financial institutions. city ​​services.

Local conglomerates such as Tencent and Alibaba have also formed partnerships with blockchain companies or initiated projects themselves. Blockchain companies such as VeChain have also provided numerous partnerships with Chinese companies to improve supply chain transparency in China.

All the evidence points to the fact that China works for a blockchain nation. China has always had an open mentality to emerging technologies such as mobile payments and artificial intelligence. From now on, China will undoubtedly be the first country with an activated blockchain. Will we see the Chinese government back down and let its citizens trade again? Probably when the market is mature and less volatile, but definitely not in 2018.