The cryptocurrency sector is no longer a domain that interests seasoned geeks and business tycoons exclusively. On the contrary, mass interest in the fast-growing sector is growing across the world and the same can be said about the number of crypto investors. However, the reality is the govt in many countries has been slow to adopt it in the mainstream financial system. While a few countries have made provisions to include crypto transactions, there are others that have banned the usage of cryptocurrency altogether. The move by China to impose a complete ban on cryptocurrency usage in its territory has not exactly come as a shocker, but the implications can be felt in other countries as well.
China’s crypto ban- how it unfolded
China is known for imposing a ban on technologies that its govt deems inapt for the citizens and sovereignty of the nation. The CCP ruled nation banned usage of popular social media platforms and it also restricts citizens from using popular internet search engines, a long time back. That is why Chinese people have to use weibo and Baidu and similar platforms for performing online activities. Recently, Yahoo exited China operations too. The recent move by China’s central bank dealt a striking blow on the cryptocurrency users in the country. Before that move, China used to be the largest cryptocurrency market in the world.
Chinese banks started reducing the usage of such unregulated currencies in 2013 and after 2016 regulations were further tightened. Initial Coin Offerings were also declared illegal. While crypto-currency Trading was prohibited in China in 2019, the users resorted to foreign exchanges for making crypto investments. A gradual crackdown was enforced this year. The People’s Bank of China announced in an official statement that all crypto-currency transactions will be deemed illegal.
Right from the early part of 2021, the CCP started showing its keenness to thwart crypto usage in the country. In May, buyers were cautioned by the Chinese state intuitions that they will get no safety for trading Bitcoin and similar crypto coins online. Next month, the Chinese payment platforms and banks were told to stop dealing with crypto transactions. The final blow came in the form of a formal declaration by the Central bank. It took place on Sep 24th, 2021. The pro-Chinese govt News outlets backed the move saying cryptocurrencies have been affecting the financial systems and overall economic state in the country.
The core reasons for the blanket crypto ban
The Chinese govt had been limiting the scope for agencies and brands offering crypto services in its country in the last few years. It was a gradual tightening of norms. However, the latest carpet ban on cryptocurrency is meant to eradicate competition for its upcoming official digital currency. China will become the 1st major economy to achieve that milestone. The upcoming government-sponsored digital currency aka digital Yuan is meant to aid the CCP to move away from relying on the dollar.
The digital Yuan may also be used by the CCP to its advantage, in other ways. Through this currency, the Chinese govt would be able to track spending made by the citizens in real-time. They already track the movements and activities of the residents using many tools and technologies. This will yield a huge power to the govt. However, that will not be possible if the residents keep using a decentralized, anonymous cryptocurrency like Bitcoin. Such unregulated currencies may challenge the supremacy of the digital yuan and thwart the ideologies of surveillance. So, banning these decentralized cryptocurrencies will make digital yuan the sole digital currency available for the residents.
Another reason for the drastic crypto ban could be the environmental issue. China had become a crypto mining hub and that left a solid impact on the environment. Given the fact the Chinese govt has set a goal for achieving carbon neutrality, thwarting mining activity seems a logical step. It is a fact that over 60% of cryptocurrency mining in China was powered by carbon-spewing power plants.
How the crypto ban affects Chinese citizens?
It is quite clear that the CCP wants no trace of crypto transactions and divestments taking place in its territory. All types of cryptocurrency trading in China are now illegal. Anyone involved in such illegal financial activities” will be prosecuted. The foreign websites offering such services to Chinese citizens have also been labeled illegal.
What are the implications of China’s crypto ban on others?
On the surface, it may seem it is the Chinese citizens who have been hurt the hardest by the latest govt ban. However, the truth is the implication of this carpet crypto ban will be felt through many levels, outside the country. Not all of it is going to be bad, though.
- Owing to its lower electricity costs and abundance of low priced computer hardware, China became a haven for the Bitcoin miners in the last few years. The new ban will hit the crypto mining sector very hard. A lot of the miners are now moving out of the Chinese mainland. Singapore is being preferred for a majority of these people.
- Immediately after the declaration by the Chinese central bank, price of the popular crypto coins including Bitcoin plummeted or reduced.
- While the international exchanges having large client base in China have not reacted sharply to the govt move, they are trying to sever ties with the Chinese clients. The OTC platforms such as Huobi Global will stop services to the Chinese users.
- Weird as it may seem, the tech firms outside China involved in the crypto sector may rejoice at the development. NVIDIA, an US chip maker that makes GPUs for PCs and devices is thrilled. Its CMP chips will not have to face the heat from state-subsidized Chinese competitors anymore. The massive mining capacity of China literally evaporated after this drastic ban.
- The carpet ban by China on crypto sector may eventually benefit it in other countries. As China puts focus on the digital yuan, decentralized cryptocurrencies like Ether and Bitcoin will be viewed as open, democratic alternatives. That will make the Western regulators, users and institutions embrace these coins better and faster.
- As the Chinese crypto miners move to other countries, the environmental impact of Bitcoin mining will get reduced, say the experts. In China, the mining was done using coal powered energy which led to huge environmental pollution. In many European countries and the USA, mining is done using solar and wind power, which has far less impact on the Nature.
- While the carpet ban did have an immediate ripple effect on the Indian exchanges, that did not last for long. In fact, the seasoned crypto investors bought more Ethereum and Bitcoin soon after.
Will it have a deep effect on the Indian crypto market?
The Crypto sector experts feel the carpet ban imposed by China on cryptocurrency will not impact the Indian sector badly. The Indian investors using China-based exchanges and platforms will surely want to seek alternatives and that is natural. However, the Indian govt is unlikely to follow its Chinese counterpart in this regard. It is in the process of drafting a law for crypto regulation but a carpet ban is not expected. The Indian crypto market is pretty big and top exchanges have started operations in India in recent times.
WazirX CEO Nischal Shetty said that China’s carpet ban on the crypto sector has affected coin prices globally but that will not persist for long. The crypto sector is known for its volatility but that is not the end of it. Not long after the price of Bitcoin and Ether took a nosedive after the ban, they recovered too.