Over days gone by year, the cryptocurrency market took a series of heavy punches from the Chinese government. The market took the hits just like a warrior, but the combos took its toll in lots of cryptocurrency investors. The market lackluster performance in 2018 pales compared to its stellar thousand-percent gains in 2017.
What has happened?
Since 2013, the Chinese government have taken measures to regulate cryptocurrency, but nothing in comparison to that which was enforced in 2017. (Have a look at this article for a detailed analysis of the official notice 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 look at more extreme measures, including the ban of initial coin offerings (ICOs) and clampdowns on domestic cryptocurrency exchanges. Immediately after, mining factories in China were forced to close down, citing excessive electricity consumption. Many exchanges and factories have relocated overseas in order to avoid regulations but remained accessible to Chinese investors. Nonetheless, they still neglect to escape the claws of the Chinese Dragon.
In the latest group of government-led efforts to monitor and ban cryptocurrency trading among Chinese investors, China extended its “Eagle Eye” to monitor foreign cryptocurrency exchanges. Companies and bank accounts suspected of undertaking transactions with foreign crypto-exchanges and related activities are put through measures from limiting withdrawal limits to freezing of accounts. There have even been ongoing rumors on the list of Chinese community of more extreme measures to be enforced on foreign platforms that allow trading among Chinese investors.
“As for whether there will be further regulatory measures, we shall have to await orders from the bigger authorities.” 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
WHY WHY WHY!?
Imagine your child investing their savings to invest in an electronic product (in cases like this, cryptocurrency) that he or she has no way of verifying its authenticity and value. He / she could get lucky and strike it rich, or lose everything once the crypto-bubble burst. Now scale that to an incredible number 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 have heard news of individuals sending coins to random addresses with the promise of doubling their investments and ICOs that simply don’t make sense). Many unsavvy investors come 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. Through the crypto-boom in 2017, take part in any ICO with the famous advisor onboard, a promising team or perhaps a decent hype and you also are guaranteed at least 3X your investments.
A lack of knowledge of the firm and the technology behind it, combined with proliferation of ICOs, is really a recipe for disaster. Members of the Central bank reports that almost 90% of the ICOs are fraudulent or involves illegal fundraising. In my opinion, the Chinese government really wants to make sure that cryptocurrency remains ‘controllable’ rather than 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. Actually, 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 take action. 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.
A State-run Cryptocurrency Exchange?
At the annual “Two Sessions” (Named because two major parties- National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPCC) both be a part of the forumï¼held on the initial week of March, leaders congregate to go over about the latest issues and make necessary law amendments.
Wang Pengjie, an associate of the NPCC dabbled into the prospects of a state-run digital asset trading platform together with initiate educational projects on blockchain and cryptocurrency in China. However, Spice Token proposed platform would require a authenticated account to allow trading.
“With the establishment of related regulations and the co-operation of the People’s Bank of China (PBoC) and China Securities Regulatory Commission(CSRC), a regulated and efficient cryptocurrency exchange platform would serve as a formal method for companies to improve funds (through ICOs) and investors to carry their digital assets and achieve capital appreciation” Excerpts of Wang Pengjie presentation at both Sessions.