November 25, 2020

Preparing for a Cryptocurrency World: China Edition

In the last year, the cryptocurrency market took a series of heavy punches from the Chinese government. The market took the hits like a warrior, but the combos have taken its toll in many cryptocurrency investors. The market lackluster performance in 2018 pales in comparison to its stellar thousand-percent gains in 2017.

What has happened?

Since 2013, the Chinese government have taken measures to regulate cryptocurrency, but nothing compared to what was enforced within 2017. (Check out this article for a detailed analysis of the official see issued by the Chinese government)

2017 was a banner year for the cryptocurrency market with all the attention and growth it has achieved. The extreme price volatility forced the Central bank to adopt more extreme measures, including the ban of initial coin offerings (ICOs) and clampdowns on domestic cryptocurrency exchanges. Soon after, mining factories in China were required to close down, citing excessive electrical power consumption. Many exchanges and industrial facilities have relocated overseas to avoid rules but remained accessible to Chinese investors. Nonetheless, they still fail to escape the claws of the Chinese language Dragon.

In the latest series of government-led efforts to monitor and ban cryptocurrency trading among Chinese investors, Cina extended its “Eagle Eye” in order to foreign cryptocurrency exchanges. Companies and bank accounts suspected of carrying out transactions with foreign crypto-exchanges and related activities are subjected to measures through limiting withdrawal limits to freezing of accounts. There have also been ongoing rumors among the Chinese community of more extreme procedures to be enforced on foreign platforms that allow trading among Chinese investors.

“As for whether you will have further regulatory measures, we will have to wait for orders from the higher government bodies. ” Excerpts from an interview with team leader of the China’s Public Information Network Security Supervision agency under the Ministry of Public Security, 28th February


Think about your child investing his or her savings to invest in a digital product (in this case, cryptocurrency) that he or she has no way of confirming its authenticity and value. He or she could get lucky and strike it rich, or lose it all once the crypto-bubble burst. Now scale that to millions of Chinese citizens and we are talking about billions of Chinese Yuan.

The market is full of scams and pointless ICOs. (I’m sure you possess heard news of people sending coins to random addresses with the guarantee of doubling their investments and ICOs that simply don’t make sense). Many unsavvy investors have been in it for the money and would care less about the technology and innovation behind it. The value of many cryptocurrencies comes from market speculation. During the crypto-boom within 2017, participate in any ICO with either a famous advisor onboard, a good team or a decent hype and you are guaranteed at least 3X your assets.
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A lack of understanding of the firm and the technology behind it, combined with the proliferation of ICOs, is a recipe intended for disaster. Members of the Central loan provider reports that almost 90% of the ICOs are fraudulent or involves illegal fundraising. In my opinion, the Chinese government wants to ensure that cryptocurrency remains ‘controllable’ and not too big to fail within the Chinese community. China is taking the right steps towards a safer, more regulated cryptocurrency world, albeit aggressive and controversial. In fact , it might be the best move the country has taken in decades.

Will China issue an ultimatum and make cryptocurrency illegal? I highly doubt so since it is pretty pointless to do so. Currently, financial institutions are banned from holding any crypto assets while individuals are allowed to but are barred from carrying out any forms of trading.

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