Let us quickly recall the history of individual Chinese bans on cryptocurrencies. In 2013, in response to the culminating bitcoin bullmarket, the People’s Bank of China and the Chinese Ministry of Informatics officially banned Chinese commercial banks from handling bitcoin-related transactions in any way. In a country with heavily controlled capital flows, this was probably a necessary and probably quite rational decision. For the others, it was often not so clear. China’s first attempt to regulate bitcoin is more or less correlated in time with the beginning of the next bear market, which is being misused by market manipulators at least once in the coming year to further price cuts (Weibo alarm report). Otherwise, the next three years were quite calm. The real shock comes in mid-2017, when the Chinese central bank comes as the first country in the world with an official ICO ban. At the same time, however, he is pulling another triumph out of his sleeve, with a much greater impact on the local business, but also the surrounding world, with a big crackdown on cryptocurrency exchanges. Exchanges operating in the country were given the task of terminating their services by the end of September 2017, all of which were officially justified by the risk of their involvement in facilitating crime, money laundering and smuggling. The unofficial, but all the more serious reason was that through cryptocurrencies capital was running out of the country, which was otherwise to be very strictly controlled. Some exchanges, including the current market leader – Binance, have had to move abroad, and speculators have again learned to use VPN connections and get used to overseas platforms. At the beginning of 2018, the first, as yet unsubstantiated reports appear that China intends to shed light on miners. Although this plan proved to be true only later, China did not forgive one ban. It was a ban on hosting or promoting any cryptocurrency events on commercial sites. This may seem like a rather drastic decision, but it is the same time that Google, Facebook and Reddit ban advertising for any cryptocurrency-related projects. So we move on. In 2019, the mining finally took place. In 2019, the National Development and Reform Commission (NDRC) published a proposal containing an updated list of sectors that it intends to abolish or reduce, given the lack of strategic resources. The updated proposal contained more than 450 activities (the first such list appeared in 2011, but then without Bitcoin). Mining of PoW cryptocurrencies met the conditions on the list, so the cage fell. Chinese mining authorities have terminated land contracts in some regions of China for several years, almost always for banal formal reasons. The needs of other Chinese industries and the mining industry therefore clashed, and for a long time. In 2020, for the first time, the regional government tried to ban cryptocurrency miners from the Sichuan and Yunnan regions by putting pressure on hydroelectric power plants to prevent miners from selling unused network capacity. However, the results were only partial. Everything changes only at the turn of May and June this year, when the implementation of the NDRC plan and the ban on cryptocurrency mining in China actually take place. Hand in hand with it, China is tightening the ban on offering cryptocurrency services for banks and payment services. Enforcement of the mining ban then goes hand in hand with a major push for “over the counter” trade in cryptocurrencies. However, there is an earlier precedent here as well – already in 2020, China left bank accounts with a larger number of bitcoin minerals and OTC traders without warning. Current blanket ban And this finally brings us to the latest ban on cryptocurrency transactions on Friday, September 24 this year. Unlike previous sub-bans, which were targeted and tried (albeit sometimes unhappily) to address specific practical problems, the latest ban, in which the Chinese Central Bank and other Chinese regulators declared all cryptocurrency transactions illegal, is a brutal step that can be difficult to label as systemic. In addition to the cryptocurrency users themselves, it also has a direct impact on the surrounding infrastructure providers. Companies connected to the crypto business now not only do not get an account with a Chinese bank (which they would not have theoretically had before), but they are also not allowed to use Chinese IT services or marketing companies. Something like that hasn’t happened here yet. The officially unacknowledged reason is the “usual suspect” – an attempt to maintain control over capital flows. But will it work? Absolute bans on anything are common in totalitarian regimes and quite often fail in practice. Will this also apply to China’s ban on cryptocurrency transactions? Until now, China has been one of the largest players in the world in terms of the value of money transferred through cryptocurrencies, and it is difficult to imagine that it would be over at the command. However, China’s blanket ban on cryptocurrency transactions goes hand in hand with another partial ban, which is also unparalleled in the history of Chinese regulations. For the first time in history, it also explicitly targets foreign stock exchanges. The provision of foreign cryptocurrency exchange and exchange services in mainland China is also illegal, and exchanges have a relatively short time to deal with such a situation. Impact on the economy So far, the market has reacted to the news of the last Chinese ban relatively lukewarmly, apparently it is already relatively hard on Chinese attacks against cryptocurrencies. But that does not mean that there will be no consequences. Leaving aside the very fact that the market often reacts with a certain inertia, there are a number of questions. Now that cryptocurrency transactions are illegal in China, what will happen, for example, to the cryptoactive activities that the Chinese living in their homeland own? Two years ago, an internet court in Hangzhou, China, very progressively confirmed Bitcoin’s legal status as a “virtual asset.” “An Internet court in Hangzhou has stated that bitcoin has ownership attributes. It is valuable, there is a limited amount of it and it has its useful value. We should therefore recognize it as a virtual asset under “General Civil Law”. Virtual property is legally protected by the laws of the People’s Republic of China, “says a contemporary article from The Beijing News (???). However, the current decision of Chinese regulators turns this interpretation a little on its head. The consequences can be interesting. Today, the cryptocurrency business in Central Earth is also connected to a relatively wide infrastructure: IT services, data and hosting services, marketing services and, last but not least, the world’s largest manufacturer of mining ASIC (application specific integrated circuit) equipment is located in the country. These companies suddenly lose a significant part of their income. Did the Chinese government even think of an impact on the local economy, or is it meant only as a “small sacrifice” for the benefit of the common good? It will be very interesting to see how foreign stock exchanges are coping with the ban on serving clients from mainland China and how the market is coping with their decline. Prohibition in practice The most interesting thing, however, will be whether the ban will actually work in practice. An official ban is one thing, to stop the decentralized economy completely then another. One of its basic features is that Bitcoin does not require a trusted intermediary for a “peer to peer” transaction, which should be true for all cryptocurrencies. Users with an Ethernet wallet can move their trading activities to decentralized exchanges without KYC, and the others have long ago learned to use VPNs and circumvent restrictions. After all, with a similar experience, they are not alone – when Americans have learned to circumvent the restrictions on trading on foreign derivatives exchanges, it is difficult to imagine that China’s famous Asian ingenuity would survive. It is also difficult to prevent the Chinese from buying cryptocurrencies abroad (for example, using cryptocurrency ATMs) and not bringing them home in the form of seeds to their wallets hidden in their heads. So, rather than China eliminating cryptocurrencies from its ring, it may turn out from the cryptocurrency world itself, losing a competitive advantage. What would the legendary strategist Sun Tzu say?
CNY - Chinese Yuan Renminbi