As one of the worldโs largest economies, Chinaโs stance on cryptocurrencies has always had a profound impact on the cryptocurrencyย market Still, Chinaโs historical relationship with cryptocurrencies isย very complex. It requires an understanding of the reasons behind its notorious bans and an examination of theย capacity implications of lifting Chinaโs cryptocurrency ban.ย
With recent signs suggesting a possible shift in policy, futureย ofย the cryptocurrencies in China hangs in the balance, promising wholeย lotย of repercussions for the industry worldwide.
Chinaโs History of Banning Crypto
China has a long history of imposing restrictions on cryptocurrencies, with the 1st attempt taking place in 2013 when the Peopleโs Bank of China (PBC) announced regulations that prohibited financial institutions from transacting in virtual currencies like Bitcoin.ย
Nonetheless, this did not make it illegal for Chinese citizens to buy, store, or send cryptocurrencies. It simply made accessing cryptocurrencies from exchanges more challenging.ย
This 1st ban was aimed at slowing down Bitcoinย (BTC) trading, as it had become so widespread that numerous enterprises, including the countryโs largest search engine Baidu, began accepting it as payment.
In 2017, during the cryptocurrency bull market, Chinese officials imposed increased sanctions on cryptocurrency trading, focusing particularly on Initial Coin Offerings (ICOs). ICOs, digital cryptoย tokens meant to represent an ownership stake in a new cryptocurrency project, have seen a wholeย lotย of boostย in trading.ย
Still, aย lotย of these ICOs became scams owingย to the lack of regulation. To curb the ICO craze, China banned all platforms offering ICOs. If an exchange sold ICOs, they had to return the money to investors.
In 2021, China took the most severe measures in its history against cryptocurrencies. As Bitcoinย (BTC) hovers around $55,000, Chinaโs State Council announced a formal ban on cryptocurrency mining.
Shortly after, the hash price on BTCโs network dropped 50%, with BTCโs price plunging to about $30,000 in the ensuing months.ย
Inย additionย to the Bitcoinย (BTC) mining ban, Chinaโs regulatory bodies outlawed all cryptocurrency trading and transactions. It is likewise illegal for residents to send cryptocurrency and for enterprises and banks to accept coins like Bitcoinย (BTC) and Ethereum.ย
Regardlessย of the ban, there are no specific policies against holding digital assets, so Chinese residents who already have cryptocurrency in a wallet are not violating any current laws.
Why China Banned Cryptos
Plentyย of factors drove Chinaโs decision to ban cryptocurrencies. These include:ย
- Concerns about consumerย safety owingย to the association of cryptocurrencies with scams and money laundering.
- The unclear legal status of digital currencies.ย
- Theย capacity for financialย resources flight.ย
- The devaluation of the yuan.ย
- Environmental concerns owingย to BTCโs high energy requirements.
- A desire to control Monetaryย Authority Digitalย currencies (CBDCs) and metaverseย network projects.ย
Nonetheless, China is actively working on an official CBDC known as the โdigital yuan,โ and cities like Shanghai have pledged billions to develop national metaverseย network projects.
The ban had wholeย lotย of aftereffects on the worldwide cryptocurrency industry. Chinaโs Bitcoinย (BTC) mining ban caused a wholeย lotย of decrease in the hash power on the Bitcoinย (BTC) blockchainย tech. Aย lotย of Chinaโs Bitcoinย (BTC) miners fled to countries that were more friendly to the cryptocurrency industry.ย
Nonetheless, BTCโs total hash price continued to boostย in the months following the ban, and by January 2022, it was significantly higher than before Chinaโs Bitcoinย (BTC) ban.ย
It was likewise observed that mining activity in China appeared on BTCโs network in September 2021, suggesting that numerous Chinese mining pools still operate undergroundโโ.
Is China Lifting the Cryptocurrency Ban?
Regardlessย of the stringent restrictions, Chinaโs ban on cryptocurrencies has not completely halted activity in the sector. Underground cryptocurrency markets have sprouted up as cryptocurrency enthusiasts in the country continue to find ways around the restrictions.ย
More recently, onย theย otherย hand, signs have suggested a possible shift in Chinaโs stance towards cryptos.
In the latest development, there are indications that China canย potentially be easing its hardline stance on cryptocurrencies. This news is substantial given that one of the most wholeย lotย of shocks to the cryptocurrencyย market in the past couple of years came in 2021 when China announced its most wholeย lotย of crackdown isย still on digital assets.ย
This crackdown was part of a wider attemptย to regulate the financial technology sector. It was likewise in line with Chinaโs ambition to introduce its own digitalย currency, the digital yuan.
The worldwide cryptocurrency community is closely watching indicationsย of a potential shift in Chinaโs stance towards cryptocurrencies. Nonetheless, the specifics of this shift are not isย still clear, and how these developments will pan out remains to be seen.ย
It should be pointedย outย that even if China were to ease its restrictions, it would likely continue to exercise tight control over the sector to secure consumerย safety, prevent potential financial dangers, and maintain control over its own digitalย currency initiatives.
What Will Happen If China Lifts Ban on Cypto?
If China were to lift its ban on cryptocurrencies, it would likely significantly impact the worldwide cryptocurrency market.ย
As the worldโs most populous country and one of the largest economies, Chinaโs acceptance of cryptocurrencies could stimulate worldwide demand, boost prices, and potentially lead to wider acceptance of digitalย currencies. Itย canย potentially likewise pave the way for the return of cryptocurrency mining activities to the country, which was once the worldโs largest Bitcoinย (BTC) mining hub.
Binanceย Cryptoย exchange CEO Changpeng Zhao maintains that lifting Chinaโs cryptocurrency ban is a โbig deal.โ The fact that CCTV (China Central Television) recently broadcasted a news segment about cryptocurrency has sent waves in the Chinese-speaking communities.
โHistorically, coverages like these led to bull runs. Not saying past predicts the future,โ stated Zhao.ย
JUST IN: ๐จ๐ณ Chinaโs Central Television network just broadcasted theย latestย information that Hong Kong is allowing retail investors to buy #bitcoin
China is quietly allowing it againโฆ ๐ pic.twitter.com/M2qy6ig7x0
โ Bitcoinย (BTC) Magazine (@BitcoinMagazine) May 24, 2023
Still, unbanning cryptocurrency could likewise pose challenges. Forย example, itย canย potentially lead to increased volatility in the cryptocurrencyย market Inย addition, itย canย potentially attract about regulatory challenges as authorities grapple with consumerย safety, money laundering, and financial stability issues.
Theย capacity lifting of Chinaโs ban on cryptocurrencies is a development with wholeย lotย of implications for the worldwide cryptocurrencyย market Onย theย otherย hand, until more concrete information becomes available, the true impact of this development remains to be seen.
