As one of the largest economies in the world, China’s position on cryptos has always had a major impact on the crypto market. Still, China’s historical relationship with cryptos is quite complex. It requires an understanding of the reasons behind the notorious bans and an examination of the possible implications of lifting China’s crypto ban.
With recent signs suggesting a potential policy change, the future of crypto in China hangs in the balance, leading to significant ramifications for the industry worldwide.
China’s History of Crypto Banning
China has a long history of imposing restrictions on cryptos, and the first attempt was made in 2013 when the People’s Bank of China (PBC) issued rules that prohibited financial institutions from conducting transactions in virtual currencies such as Bitcoin .
However, this did not make it illegal for Chinese citizens to buy, store or send cryptocurrencies. It made it more challenging to access cryptos from exchanges.
This first ban was aimed at slowing down Bitcoin trading, as it was so widespread that many businesses, including the country’s largest search engine Baidu, began to accept it as payment.
In 2017, during the crypto bull market, Chinese officials imposed increased sanctions on crypto trading, particularly targeting Initial Coin Offerings (ICOs). ICOs, digital tokens intended 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 the lack of regulation. To curb the ICO craze, China banned all platforms offering ICOs. If an exchange sold ICOs, they had to return the money to investors.
In 2021, China took the strictest measures in its history against cryptocurrencies. As Bitcoin hovers around $55,000, China’s State Council announced a formal ban on crypto mining.
Shortly after, the hash rate on the Bitcoin network dropped by 50%, and the price of Bitcoin dropped to around $30,000 in the following months.
Along with the ban on Bitcoin mining, Chinese regulatory bodies have also banned all crypto trading and transactions. It is also illegal for residents to send crypto and for businesses and banks to accept coins such as Bitcoin and Ethereum.
Despite the ban, there are no specific policies against holding digital assets, so Chinese residents who already have crypto in their wallets are not breaking any current laws.
Why China Banned Cryptos
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.
- Desires to regulate Central Bank Digital Currencies (CBDCs) and matching projects.
In fact, China is actively working on an official CBDC called the «digital yuan,» and cities like Shanghai have pledged billions to develop national mesoscopic projects.
The ban had significant after-effects on the global crypto industry. China’s ban on Bitcoin mining caused a significant drop in the hash power on the Bitcoin blockchain. Many Chinese Bitcoin miners fled to nations that were friendlier to the crypto industry.
However, Bitcoin’s overall hash rate continued to increase in the months following the ban, and by January 2022, it was significantly higher than before the Chinese Bitcoin ban.
It was also noted that mining activity in China was visible on the Bitcoin network in September 2021, suggesting that many Chinese mining pools are still operating underground.
Is China Lifting Its Crypto Ban?
Despite the strict restrictions, China’s ban on cryptos has not completely stopped activity in the sector. Underground crypto markets have grown as crypto enthusiasts in the country continue to find ways around the restrictions.
Recently, however, signs have suggested that China’s stance towards cryptos may be changing.
In the latest development, there are signs that China may ease its tough stance on cryptos. This news is significant as one of the most significant shocks to the crypto market in the last few years came in 2021 when China released its most significant crackdown yet on digital assets.
This crackdown was part of a wider effort to regulate the financial technology sector. It was also in line with China’s ambition to introduce its own digital currency, the digital yuan.
The global crypto community is closely watching for signs of a possible change in China’s stance towards cryptos. However, the details of this transition 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 exercise 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 Bans Cypto?
If China were to lift its ban on cryptos, it would likely have a significant impact on the global crypto market.
As the world’s most populous country and one of the largest economies, China’s adoption of cryptocurrencies could spur global demand, boost prices, and lead to wider adoption of digital currencies. It could also pave the way to bring crypto mining activities back to the country, which was once the world’s largest Bitcoin mining hub.
Binance CEO Changpeng Zhao keeps that lifting China’s encryption ban is «a big deal». The fact that CCTV (China Central Television) has recently broadcast a news segment about crypto has sent waves in the Chinese-speaking communities.
“Historically, coverages like this have led to a bull run. The past is not said to predict the future,” said Zhao.
However, unbanning crypto can be challenging. For example, it could lead to increased volatility in the crypto market. In addition, it could create regulatory challenges as authorities grapple with issues of consumer protection, money laundering and financial stability.
The potential lifting of China’s ban on cryptos is a development with significant implications for the global crypto market. But until concrete information is available, the true impact of this development remains to be seen.
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