China continues its countrywide crypto ban
If you are thinking that China’s crypto ban is giving you the creeps, that’s because China – the world’s second-largest economy has been actively banning all crypto-related activities for over a decade. The announcements coming from China aim at curbing trading through offshore platforms affecting Bitcoin, which fell nearly 10% after the news. Thus the question arises about the effectiveness of implementing the new rules by China preventing its citizens from trading cryptos and the impact that would have on the broader market? We need to examine the previous crypto bans and the effect they had for clues:
- June 2009, Value of Bitcoin $0.0001: Six months after the invention of Bitcoin, China states that virtual currencies will be prohibited, partly to discourage gamers from purchasing real-world things with in-game currency without even mentioning Bitcoin.
- December 2013, Value of Bitcoin $900: Chinese banks were restricted from engaging in Bitcoin-related business by the People’s Bank of China (PBOC) even though individuals could trade. After the tech giant Baidu temporarily banned accepting Bitcoin and the crypto exchange BTCChina briefly stopped accepting yuan deposits, prices plummeted by 13%.
- January 2014, Value of Bitcoin $850: As Alibaba, the giant of e-commerce followed Baidu’s footsteps banning Bitcoin transactions and sales of mining equipment. This entire episode had the price of crypto.
- September 2017, Value of Bitcoin $4,000: “The government’s campaign on Bitcoin aims at holding back capital drifting to digital currencies,” according to the updates about Chinese authorities’ plan to shut down all Bitcoin exchanges.
- May 2021, Value of Bitcoin $37,000: According to Cambridge University’s assessment, despite past bans, China remains the global center for bitcoin mining, accounting for around 46% of the average hashrate as of April. As the Chinese government officials started their widespread crackdown on crypto mining, the miners started to halt Chinese operations and began migrating to North America. The mining activity has started to recover ever since
- September 2021, Value of Bitcoin $43,000: As the People’s Bank of China reinforces current limits on trading and mining, as well as attempts to eliminate a loophole around offshore crypto accounts, some traces of crypto activity (such as over-the-counter trading) start to go away. Notably, it appears that owning cryptocurrency is still legal — and many longtime local merchants took advantage of low pricing to increase their holdings. “These policies aren’t new to us,” as told by one of the Shanghai-based crypto investors.
In the past, China’s crypto crackdowns were motivated by a desire to regulate economic freedom and prevent “capital flight.” But why are we concentrating so hard right now?
One reason could be Bitcoin’s skyrocketing price, as well as a desire to back the value of China’s central bank’s digital currency, which is just getting started. Only time will tell if China’s recent steps will have a long-term impact on BTC’s value. Markets have been roiled by earlier crackdowns, but BTC has recovered greatly in the past. Some crypto supporters in the United States even see an opportunity in Beijing’s rejection of the digital currency: “China’s totalitarian attack on crypto, including #Bitcoin, presents a huge opportunity for the US,” as tweeted by Pennsylvania’s Senator. He adds, “It also serves as a clear representation of our massive structural advantage over China.”