China on Bitcoin and Cryptocurrency

China on Bitcoin and cryptocurrency regulation

A significant share of Bitcoin trading operations takes place in China. For this reason, the position of the government regarding cryptocurrencies affects the entire crypto industry.

However, the attitude of Chinese regulators towards Bitcoin and other cryptocurrencies is way more complicated than described in the media. Let’s find out what means China regulation policy on Bitcoin, and what to expect from the country in the nearest future.

Is Bitcoin banned in China right now?

Back in 2013, the People’s Bank of China banned banks and payment companies from working with Bitcoins. In fact, the possibility of exchanging cryptocurrency for fiat did not exist. At that time, Bitcoin’s price was at its peak (almost $1,200). After the ban, the price nosedived to $196. Only after long-lasting price recovery, it reached a new historic high.

At the end of September 2017, China declared the ICO illegal and began the procedure of closing crypto exchanges even before licensing. It triggered another drop in price, shortly after which the cost of Bitcoin reached a staggering amount of $ 17,178. The scenario was similar, the only difference was about the rate of recovery. After the 2013 China Bitcoin ban, the return to its previous value took a couple of years, and in 2017, it took less than two months.

With all the hype around China cryptocurrency ban in the media, the price of Bitcoin increased by 478% during 10 months (from December 1, 2016, to September 30, 2017). After the ban for a little more than 2 months (from September 30, 2017, to December 13, 2017), the cost increased by 294%.

Perhaps the reason for Bitcoin price rising after the ban on them is hidden in the fact that some Chinese people decided to do something directly opposite the requirements of the state. Thus, when cryptocurrencies are officially recognized as a threat, some people strive to accumulate more Bitcoins as a guarantee of independence from the state.

Is Bitcoin legal in China today? Bitcoin trading is illegal for individuals, however, some crypto enthusiasts manage to evade the law and use VPN services to buy BTC on such exchanges like Coinmama, Cex.io, BTCC, LocalBitcoins, OKCoin, Huobi, LakeBTC, Bitfinex, etc (especially ones in Hong Kong and Japan). Operations with Bitcoin are banned for businesses and corporate entities, as well.

In summer 2019, the People’s Bank of China (PBOC) made a statement claiming “it would block access to all domestic and foreign cryptocurrency exchanges and ICO websites.”

Is Cryptocurrency mining banned in China?

A curious fact: in summer 2017, long before the ban was introduced, the Chinese government opened the Digital Currency Research Institute almost without mentioning in the media.

In October 12, 2017, Yao Qian, the director of the new institute, said that the creation of a state-supported digital currency would be the most effective solution. That only highlighted the impression that China wants to limit the use of decentralized digital currencies. However, the government did not stop supporting the miners – they continued enjoying cheap electricity.

Cost of electricity 2018
Cost of electricity in 2018. Source: Statista.com

China boasts a very low cost of electricity, which has become the main reason for such a huge concentration of mining devices in this territory. The lower the cost of electricity, the greater the profit that is reinvested in structure improvement.

It became possible thanks to the huge reserves of coal, one of the cheapest sources of energy. Even though such a method is not at all environmentally friendly, China is quite loyal in this regard. Reduction of raw material transportation expenses further increases the profit from mining, due to which it has become popular to build mining farms near coal pools.

It is no secret that most of the computing power of the Bitcoin network is concentrated in China. Miners like Antpool, Bitmain, and others receive cheap energy from the government from renewable sources.

The rumors that appeared after the ICO ban that mining was next in line did not materialize and came to naught. Now, when reading various articles, one gets the impression that China is trying to get the digital currency to work for itself.

BTC mining in China
Comparison of the mining pools income as of October 2018. Pool revenues for January-September 2018: ViaBTC – $ 511.7 million, AntPool – $ 714.1 million, BTC.com – $ 1.1 billion.

Official sources say about 70% of Bitcoin is generated in China, mainly in rural Inner Mongolia. All of the largest Antpool pools are also located in China. Before the ban, 90% of all sales accounted for this country. Even after traffic has shifted toward Japan and South Korea, China remains one of the largest markets.

The rapid growth of the mining industry in China was conditioned by the low cost of electricity and land. However, in 2018, China’s cryptocurrency regulation trends have changed, due to which giants such as ViaBTC, BTC.TOP and Bitmain announced their plans to witch to jurisdictions with more favorable conditions.

2019: RIP China Bitcoin mining?

In April 2019, China’s National Development and Reform Commission (NDRC) has announced it wants to ban Bitcoin mining. The document explaining their decision appeared on the organization’s website. One of the reasons for that the growing pressure on the cryptocurrency sector by the PRC government. 

Representatives of the NDRC announced that they had drawn up a document revising the list of industries that are planned to be further encouraged, limited or eliminated (for the first time, such list was published in 2011). Cryptocurrency mining was added to the third list of the project.

Why? Because Bitcoin mining does not comply with applicable laws and regulations, can unsafe, and leads to the waste of resources or environmental pollution. 

According to Chinese authorities, China Bitcoin miners pose a high risk to the financial industry. In particular, government agencies are afraid of the growing electricity consumption level. 

The availability of cheap electricity, which contributed to the popularization of crypto mining in the country, was also limited. However, despite the demonstration of a negative attitude towards cryptocurrencies, the Chinese regulator has previously suggested creating a yuan-based stablecoin which might become a China national cryptocurrency.

Current China’s Policy on cryptocurrency

So, what is the point in China’s cryptocurrency crackdown? There are several theories:

  1. The government is afraid of Bitcoin’s potential to disrupt the traditional economy;
  2. The state wants to develop China government cryptocurrency that would replace all other cryptocurrencies and yet stay under control of the authorities;
  3.  Through manipulations with Bitcoin, China affects the worldwide cryptocurrency market, and it might only continue growing.

The influence of China ban on cryptocurrency and its policy is hard to overestimate. Scientists are sure that China is the country with the greatest opportunities to disrupt the Bitcoin market at both technical and regulatory levels, and has real motives to do this.

The cryptocurrency mining is already highly centralized given that 80% of the cryptocurrency mining capacities are controlled by only 6 pools and 5 of them are Chinese. If those pools unite, they can easily carry out a “51% attack”. Moreover, researchers have identified as many as 19 types of attacks that can be carried out against Bitcoin. They are divided into 4 classes: 

  1. Censorship of miners and users.
  2. Deanonymization of market participants.
  3. Destabilization of Bitcoin.
  4. Violation of the mining environment.

Thus, it won’t be hard for China to disrupt Bitcoin and influence the modern cryptocurrency market around the world.  However, the currency policy of the Chinese government and China Bitcoin mining ban rather signify that the authorities are chasing different goals. 

Recent news on crypto from China

Aside from the BTC mining ban, the recent China Bitcoin news is closely connected with the price of Yuan. 

On Monday, August 5, the value of Bitcoin increased sharply and reached the mark of $ 11 786 growing by as much as 8%. At the same time, the Chinese Yuan fell to an 11-year low of $7. US President Donald Trump said the Chinese government is manipulating the price of their national currency.

CNBC TV channel explained that by the fact that Chinese investors use Bitcoin as a means of preserving value. This theory was not favored by Peter Schiff, the economist and head of Euro Pacific Capital Brokerage Company.

Thus, the Bitcoin value is affected not only by China crypto news but events related to Yuan, as well!

The latest Bitcoin price fall is attributed to the Chinese ban by some media:

But some people (including the above-mentioned Peter Schiff) refuse to admit the connection between those events.

As mentioned by Bloomberg, China started cleaning up the sector making major Chinese exchange & crypto platforms shut down.

China sways cryptocurrencies
BTC trading volume after Bitcoin ban in China

In a new investigation by the Chinese television channel CCTV1, the mouthpiece of the Communist Party, journalists called cryptocurrencies unregistered securities, fraud and Ponzi schemes.

By the way, Shanghai and Shenzhen authorities will tighten the fight against crypto trading and Pump & Dump schemes.

What exactly is considered illegal in the current Chinese legal paradigm is difficult to determine, writes Dovi Wang of Primitive Ventures. Outside of the law, ICO/IEO are definitely located, Ponzi’s schemes are also obvious, and probably crypto trading operations.

The pressure of the Chinese authorities on the crypto industry is intensifying – only recently have five local cryptocurrency exchanges closed or announced the termination of services to residents of the PRC.

Last week, the Beijing BISS exchange suspended work at the request of the authorities, and law enforcement officers arrested more than 10 employees.

In addition, the Bitsoda and Akdex exchanges also announced the cessation of activity, and the IDAX and Btuex platforms announced that they would no longer serve users from China at the request of local authorities.

Tighter policy on the part of the Chinese regulators in relation to the crypto industry encourages traders to transfer their assets to safer places.

All this suggests that the authorities’ support for the blockchain should not be regarded as approval of cryptocurrencies.

FAQ on China & Cryptocurrency

1. Is Bitcoin trading prohibited in China?

While individuals are not likely to get punished for trading cryptocurrency, the Chinese authorities are forcing online crypto exchanges close. Thus, BTC traders are left without the opportunity to buy or sell their crypto assets.

2. Is Bitcoin mining prohibited in China?

Although the document suggesting to ban mining in China has already been released and validated, there is no clear statement of the date when mining pools should be closed.

3. Are all cryptocurrencies prohibited in China?

The attitude towards BTC and other crypto is pretty much the same. However, the Chinese authorities are planning to introduce the digital Yena – a crypto analog of the national currency. Thus, the market of crypto in the Mainland will not be fully destroyed.

4. What about the status of Bitcoin in Hong Kong?

Since Hong Kong has its own inner policy, so far it stays a safe haven for crypto traders and startups. 

Summary

When it comes to Bitcoin and cryptocurrency, China is one of the major market shapers simply due to the fact that the local mining farms contribute to ~70-80% of all generated BTC. Besides, the BTC trading volumes in China are astonishing when compared to the rates of other countries. 

The current attitude of the Chinese government to cryptocurrencies is clear: it wants to obliterate BTC trading and mining in the country. What for? Time will show.

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