Preparing for the world of cryptocurrency: Chinese edition

Over the past year, the cryptocurrency market has received a number of severe blows from the Chinese government. The market took the hits like a warrior, but these combos have taken their toll on many cryptocurrency investors. Weak market performance in 2018 is fading compared to stellar thousand percent earnings in 2017.

What happened?

Since 2013, the Chinese government has been taking steps to regulate the cryptocurrency, but nothing compared to what was put into effect in 2017 (See this article for a detailed analysis of the Chinese government’s official statement)

2017 has become a banner 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 restrictions on domestic cryptocurrency exchanges. Soon, mining plants in China were forced to shut down, citing excessive electricity consumption. Many exchanges and factories moved abroad to evade the rules, but remained accessible to Chinese investors. However, they still fail to escape the claws of the Chinese dragon.

In a recent series of government efforts to monitor and ban cryptocurrency trading among Chinese investors, China has spread its “Eagle Eye” to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of carrying out transactions with foreign cryptocurrencies and related activities are subject to measures ranging from withdrawal limits to account freezes. There are even rumors among the Chinese community about more extreme measures to be applied on foreign platforms that allow trading among Chinese investors.

“As for whether further regulatory action will be taken, we will have to wait for orders from higher authorities.” Excerpts from an interview with the head of the group of the Chinese Agency for Security Oversight of the Public Information Network under the Ministry of Public Security, February 28


Imagine that your child invests his savings in an investment in a digital product (in this case – in cryptocurrency), and he does not have the opportunity to verify its authenticity and value. He or she may get lucky and get rich, or lose everything if the crypto-bubble bursts. Now increase this to millions of Chinese citizens and we are talking about billions of Chinese yuan.

The market is full of fraud and pointless ICOs. (I’m sure you’ve heard the news that people are sending coins to random addresses with the promise of doubling their investments and ICOs, which just don’t make sense). A lot of unwise investors are looking for money and they would care less about the technology and innovation behind it. The value of many cryptocurrencies is derived from market speculation. During the crypto boom in 2017, take part in any ICO either with a famous advisor and with a promising team, or with a decent rush, and you guarantee at least 3 times your investment.

The misunderstanding of the firm and the underlying technologies combined with the spread of ICO is a recipe for disaster. Central Bank members report that nearly 90% of ICOs are fraudulent or involve illegal fundraising. In my opinion, the Chinese government wants to make sure that the cryptocurrency remains “controlled” and not too big to fail in the Chinese community. China is taking the right steps toward a safer, more regulated world of cryptocurrencies, albeit aggressive and controversial. In fact, it may be the best step the country has taken in decades.

Will China deliver an ultimatum and make cryptocurrency illegal? I very much doubt it, for to do so is pointless. Currently, financial institutions are prohibited from storing any crypto-assets, while individuals are allowed but prohibited from conducting 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) take part in a forum held in the first week of March, leaders gather to discuss recent problems and make necessary amendments to the law.

Wang Pengjie, a member of the NPCC, immersed himself in the prospects of a state-owned digital asset trading platform, and initiated educational projects on blockchain and cryptocurrency in China. However, the proposed platform will require an authenticated account to allow trading.

“With the establishment of relevant regulations and the cooperation of the People’s Bank of China (PBoC) and the Securities Regulatory Commission of China (CSRC), a regulated and efficient cryptocurrency exchange platform will serve as a formal way to attract companies (through ICOs) and investors who retain their digital assets. seek to raise capital ‘Fragments of Wang Pengjie’ s presentation in two sessions.

March to the blockchain nation

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

Despite the dispersal of cryptocurrencies, the blockchain is gaining popularity and proliferation at various levels. The Chinese government supports blockchain initiatives and is emulating this technology. In fact, the People’s Bank of China (PBoC) has been working on digital currency and conducting bogus transactions with some of the country’s commercial banks. It has not yet been confirmed whether the digital currency will be decentralized and will have 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 its country. However, created as a close replacement for the Chinese yuan, the digital currency will be subject to existing monetary policy and law.

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

“Many cryptocurrencies are experiencing explosive growth that could have a serious negative impact on consumers and retail investors. We don’t like (cryptocurrencies) products that use a huge opportunity for speculation, giving people the illusion of enrichment overnight” Zhou Interview Xiaochuan on Friday, March 9th.

Speaking to the media on Friday, March 9, People’s Bank of China Governor Zhou Xiaochuan criticized cryptocurrency projects that used the crypto-boom to make money and speculate in the market. He also noted that the development of digital currency is “technologically inevitable”

At the regional level, many Chinese cities are implementing blockchain initiatives aimed at promoting growth in their region. Hangzhou, known as Alibaba’s headquarters, said blockchain technology is one of the city’s top priorities in 2018. Local authorities in Chengdu have also been asked to build an incubation center to facilitate the adoption of blockchain technology in the city’s financial services.

Local conglomerates such as Tencent and Alibaba have also established partnerships with blockchain firms or initiated projects themselves. Blockchain firms, such as VeChain, have also secured several partnerships with Chinese firms to increase supply chain transparency in China.

All clues point to the fact that China is working towards a blockchain nation. China has always been tuned to new technologies such as mobile payments and artificial intelligence. From now on, China will undoubtedly become the first country to support the blockchain. Will we see how the Chinese government retreats and allows citizens to trade again? Maybe when the market matures and becomes less volatile, but definitely not in 2018.