China is one of the world’s largest cryptocurrency markets; thus, any Fluctuations there often impact the global price of cryptocurrencies.
With this kind of power, they should be deeply invested in the cryptocurrency market right? Wrong!
You see, China is the epicenter of Bitcoin mining but due to concerns about gambling fraud and money laundering being on the rise, China’s central bank has announced that all transactions of cryptocurrencies are illegal, and they are effectively banning digital tokens such as Bitcoin and several altcoins.
The PBOC stated that all crypto-related activities including services like offering trading of digital assets, order matching, token issuance, and derivatives are illegal in China.
Overseas crypto exchanges providing services in mainland China were also deemed to be illegal as well.
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Trading cryptocurrency has continually been banned in China since 2017, and this has to be the 20th time that China has banned bitcoin. But with every announcement, the price of Bitcoin fluctuates.
In the wake of China’s latest announcement, the price of Bitcoin fell by more than $2,000 (£1,460). Such is the power of China in the cryptocurrency market.
There have been signs leading to this significant announcement throughout the year;
In May, the Chinese state intuitions warned buyers that they would have no protection for continuing to trade Bitcoin and other currencies online, as government officials vowed to increase pressure on the industry.
In June, it told banks and payment platforms to stop facilitating transactions and issued bans on “mining” the currencies – which involves the use of powerful computers to make new coins.
China has long been one of the world’s main centers for mining Bitcoin. With its relatively low electricity costs and cheaper computer hardware, it became the ideal location for mining activities. In September 2019, China accounted for 75% of the world’s Bitcoin energy use, and by April 2021, that had fallen to 46%.
This clearly shows that China’s ban on Bitcoin has had the greatest effect on the mining industry.
The PBOC’s announcement is the clearest indication yet that China wants to shut down cryptocurrency trading in all its forms and is thus taking steps to deter the use of cryptocurrency in the country. By all indications, China hopes to eliminate cryptocurrency trading and mining activities in the world’s most populous nation. For real this time!
The Origin Story
China has long been crypto-skeptical. In 2013, the nation banned Chinese banks from handling Bitcoin.
In 2017, China banned initial coin offerings — wherein a cryptocurrency startup sells coins or tokens to raise funds for the venture. The People’s Bank of China, which is the country’s central bank, designated them an illegal form of fundraising.
The ban imposed on initial coin offerings (ICO), by the Chinese regulatory authorities triggered an instant 6% decline in bitcoin prices. Following the ban, the Shanghai-based BTCC bitcoin exchange was forced to close its Chinese trading operations.
These regulatory actions by China are aimed at controlling the increasing number of decentralized and non-regulated cryptocurrencies which have recently soared to astronomical valuations. Despite the ICO ban and momentary decline, cryptocurrency trading continued in China, and many participants like those based in Hong Kong and Japan, switched to foreign exchanges to deal in virtual currencies.
A lot of measures are being put in place by the PBOC to tighten regulations on domestic dealers engaged in foreign cryptocurrency transactions and ICOs. It has also forbidden China-based financial institutions from any dealing and funding in cryptocurrency-linked activities.
Chinese Government are Concerned about Fraud
The recent announcement effectively bans the use of cryptocurrencies in China and comes as the People’s Bank of China is seeing increasing turnover in overseas transactions leading to regulatory compliance evasion.
This leaves room for a lot of risk for the monetary system due to the unlawful issuance of cryptocurrencies, which may also involve multi-level marketing and Ponzi schemes to scam less crypto-savvy citizens out of their hard-earned money.
The PBOC views virtual currencies as illegal, since they are not issued by any recognized monetary institution, don’t hold any legal status that can make them equivalent to money, and hence advises against their circulation as a currency.
Will the China Ban Impact the Price of Bitcoin?
After China’s official announcement banning digital currency, the price of Bitcoin fell. But many experts pointed out that, the previous statement by the Chinese about crypto was always followed by short-lived downturns and this particular case would not be any different.
Indeed, a few days later, the price of Bitcoin was roughly the same as before the announcement.
How Does the Ban Impact Cryptocurrency Exchanges?
Crypto analysts agree that the ban by Chinese authorities will hurt the overall digital currency market, and the crypto exchanges that do business with Chinese citizens bear the most brunt.
Yes, after a while the cryptocurrency market will become stable but Crypto exchanges might still struggle to find a way to deal with Chinese customers.
For instance, Coinbase, which is one of the most prominent US-based cryptocurrency exchanges in China, will have a lot of work to do for them to retain their customer base in China; this applies to other cryptocurrency exchanges as well.
How has the UK Government Responded?
The UK government has not yet taken an official position on the Chinese law, but a handful of lawmakers said that, “even a concerted effort among different countries and different central banks could not shut down bitcoin, it just can’t be done”. “But the most they can do is put regulations on Bitcoin”.
“Still, investors in the UK won’t be impacted much, if at all-
“You can only ban something once. Every ban after is an admission that you are having a hard time going through with it”.
Impact on the UK
The main repercussion of China’s cryptocurrency ban for UK investors is that it could impact market volatility for investors.
Indeed, following the announcement from the PBOC, bitcoin fell 4% in 24 hours and is currently trading at around $43,020, according to CoinMarketCap. Ether fell 6% and is currently trading at around $2,973.
Volatility in the crypto market isn’t unusual, but investors should be vigilant because further regulation from China can cause intense price swings in the crypto world.