How China’s cryptocurrency ban will reverberate abroad


Since the Chinese government declared all cryptocurrency transactions illegal last week and banned citizens from working for crypto-related companies, the price of bitcoin has risen despite the exclusion of one of its largest. markets.

Experts say large-scale Chinese cryptocurrency miners – like Bitcoin and Ethereum – will be taking their powerful and power-hungry servers abroad. Digital currency exchanges and the many Chinese trade-related startups are also expected to rebase overseas after removing domestic customers from their lists.

The change highlights how virtual currencies can escape government regulation.

“Exchanges have grown overseas anyway, and with the exchange business, you need cloud infrastructure, you need developers, you need direction to get things done in the right direction, and so whether it’s Taipei, San Francisco, Singapore or Shanghai, it doesn’t really matter – these companies are very virtual, ”said Zennon Kapron, founder of financial advisory firm Kapronasia, based in Singapore.

“The real impact that we have probably seen, however, is in the minors, and most of these minors [are in] the process of moving abroad or [have] already finished moving abroad, ”he said.

Most Powerful Anti-Crypto Action Yet

On September 24, the People’s Bank of China, Beijing’s monetary authority, released a statement claiming that cryptocurrencies do not have the status of other monetary instruments. The notice, published in conjunction with nine other government agencies, including the Public Security Bureau, declared all related cases illegall and warned that cryptocurrency transactions originating outside of China will also be treated as crimes.

Explaining the ban, China’s state-run Xinhua News Agency reported on Friday that cryptocurrencies have disrupted the financial systems of the controlled economy and contributed to crimes such as money laundering.

Cryptocurrencies – tools of digital commerce that are not tied to a centralized banking authority – first appeared in China around 2008. Chinese banks started banning the use of digital currencies in 2013 and stepped up regulations after 2016.

China was the world’s largest Bitcoin miner and supported the largest exchange by volume, according to the information site CryptoVantage. He says many of those who suddenly made millions when Bitcoin prices soared four years ago were in China.

Chinese miners and traders on their way to Singapore

The Chinese ban results in sanctions for international exchanges that do business with people inside China, and reports indicate that international crypto exchanges have been trying to cut ties with Chinese customers in recent days. But the companies themselves remain largely silent.

A spokesperson for the digital currency exchange Coinbase said on Wednesday it had “nothing to share at this time” about the crackdown in China. US company Worldcoin Global, a new type of cryptocurrency, did not respond to a request for comment.

China’s increasing pressure on crypto in recent years has prompted stakeholders to leave the country, Kapron said, adding that less than a quarter of cryptocurrency peer-to-peer lending startups The country’s origin – small businesses that connect lenders and individual borrowers – remain in China.

Digital currency mining – the process of using computers to put bitcoins into circulation and verify cryptocurrency transactions in exchange for payment – is expected to become easier overseas as the Chinese leave the market, Kapron said.

Smaller operators, he added, might be able to operate more easily without competition from giant Chinese operations.

Singapore emerges as a favorite location for operations that do not need to be physically on land. The country had accepted around 300 cryptocurrency license applications as of July. From China, e-commerce giant Alibaba as well as digital financial firms Yillion Group and Hande Group applied, according to news reports in Asia.

Other Asian countries do not have the legal welcome mat that Singapore has extended, said Jason Hsu, vice president of the Taiwan Fintech Association industry group.

“Where would that money go?” I think that’s a question that needs to be answered, ”Hsu said. “I think in Asia, Singapore would be a destination for them. Singapore obviously has the clearest regulations and also wants to attract more digital fintech [financial-technology] companies. “

Outside of Asia, Amsterdam and Frankfurt are “establishing their footprint as international centers” for financial technology, said Rajiv Biswas, chief economist for the Asia-Pacific region at market research firm IHS Markit. Financial technology covers cryptocurrency.

Western Europe ranked this year as the world’s largest crypto economy with inflows of over $ 1,000 billion or 25% of all trade, activity, information and data service Chainalysis says. The rise of Europe follows an equally rapid growth in 2020.

Possible resurgence of crypto in China?

Chinese authorities are now targeting crypto as part of a “broader crackdown on overnight wealth” and to “cleanse the wild and wild west,” Hsu said, referring to largely uninvolved market sectors. regulated. Trade will be underground for now, he predicts, and China will eventually release an official digital currency issued by the big banks.

Several countries are considering adopting new digital currencies that would allow people to exchange money without an intermediary, such as a bank. Proponents argue that these currencies could reap the benefits of cryptocurrencies that make it easier to trade money, but without the price volatility of decentralized digital assets like bitcoin.

Chinese authorities could eventually take a more tolerant view of non-state-sanctioned digital currencies, albeit subject to strict criteria on what is legal and what is not, said Song Seng Wun, economist with the private banking unit of China. Malaysian bank CIMB. Blockchain, the core technology behind the public transaction ledger that makes crypto commerce transparent, could continue to expand in China for other purposes, he added.

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