China clamps down on crypto-related services in ongoing bitcoin war

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China’s central bank said on Tuesday it had called for the closure of a company that “was suspected of providing software services for virtual currency transactions.” The statement, released by the Beijing office of the People’s Bank of China, also warned institutions not to provide other virtual currency-related services, including the provision of business or marketing premises.

Tackling digital currencies is nothing new for the authoritarian state.

In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities halted token sales in 2017 and pledged to continue to target crypto exchanges in 2019.

But generally, every time Beijing goes after the crypto industry, the sting has worn off and the rules have ended up loosening.

This time, however, appears to be different.

In May, China banned financial institutions and payment companies from providing crypto-related services. In June, there have been mass arrests in China of people suspected of nefariously using cryptocurrencies. In the same month, regulators stepped up pressure on banks and payment companies to stop providing cryptocurrency services, and Weibo, China’s Twitter, suspended crypto-related accounts.

In July, half of the world’s bitcoin miners have now turned dark following Beijing’s call for a harsh crackdown on bitcoin mining and trading.

“The Chinese government is doing everything it can to ensure that bitcoin and other cryptocurrencies disappear from China’s financial systems and economy,” said Fred Thiel, CEO of Marathon Digital Holdings and a member of Bitcoin Mining Council.

Why now?

So why has China essentially declared war on cryptocurrencies in 2021?

“We are all wondering,” said Nic Carter, founding partner of Castle Island Ventures.

One theory is that this is part of a larger action for public order ahead of the Chinese Communist Party’s 100th anniversary this year.

“They crack down on all kinds of unwanted behavior,” Carter said.

Crypto has long been synonymous with crime on the continent.

“The biggest Ponzi scheme ever created in crypto was probably Plus Token, which was a Chinese project,” he said.

In this scheme, crooks swindled investors $ 5.7 billion and dozens were arrested. “It will be etched in their memory.”

Another theory is that China is leading the way for its own digital yuan, a central bank digital currency that has been in development since 2014.

“Part of this is ensuring the adoption of China’s central bank digital currency, and part of this is most likely to ensure that financial supervisory activities are able to see all economic activity,” Thiel explained. The digital yuan could theoretically give the government more power to track spending in real time.

But Carter argues that bitcoin and the digital yuan are so different that they can’t really be considered direct competitors.

“This is definitely the most often cited reason,” Carter said. “I don’t know if I believe so. They are systems so distinct from each other.”

The most likely motivation, according to Carter, is that Beijing is seeking to stem the outflow of capital through stablecoins and cryptocurrencies. “China choking the flow of yuan to crypto is a big deal,” he said.

The price of bitcoin

When it comes to the price of bitcoin, stemming all Chinese crypto retail businesses “totally shakes the needle,” according to Carter.

“I think that actually explains a lot of the weakness in the market and the liquidation,” he said. “The good news is that as the crackdown has gathered pace, bitcoin has remained fairly stable, which suggests that the market has digested this information.”

Thiel believes that banning bitcoin and crypto will actually help bitcoin in the long run.

“If China’s goal was to kill bitcoin by shutting down 50% of mining capacity and banning trade – thereby reducing its value to punish Chinese holders (a la Didi after the IPO and Ant Financial) “, it didn’t work.
“Instead, bitcoin has proven its resilience and trades have just moved offshore and miners elsewhere will take over.”

Alyse Killeen, founder and managing partner of bitcoin-focused venture capital firm Stillmark, points out that this whole conversation can be a moot point, as a government’s ability to ban bitcoin will only erode with the time.

“I would expect this type of news to have less of an impact on the bitcoin exchange rate than it has in the past,” she said. “It’s also true that there has been some level of industry inoculation to this news – bitcoin has been banned multiple times in many geographies, and yet today adoption exceeds l adoption of the Internet at a similar lifecycle stage. “


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