Crypto News: China’s door shut on crypto stirs a lot of confusion

  • September 30, 2021

Crypto News: China’s door shut on crypto stirs a lot of confusion

Last week, China effectively banned all cryptocurrency trading, leaving investors scrambling for legal ways to cash in their holdings.

Late this week, Chinese officials took steps to eliminate regulatory gaps in cryptocurrency trading and mining, effectively banning all such activities in China. And many cryptocurrency investors are still scrambling to deal with the consequences.

Many organizations that have placed large investments in crypto in recent years, particularly those in the tech industry, may have limited choices for liquidating their holdings.

The People’s Bank of China issued an order declaring any virtual currency-related economic activity unlawful, thus cutting China off from international crypto exchanges. Investors who deal with foreign exchanges may face penalties as a result of this.

Winston Ma, an adjunct professor at New York University and a global financial regulation specialist, said, “What is a little unclear is when the timing for the literal cut-off date is.”

In a video call with Al Jazeera, he said, “When is that magic date for no more trades, no more crypto holdings?”

According to Ma, the effective date may be last Friday – the day the warning was sent – but even that hasn’t been established.

According to Ma, the effective date may be last Friday – the day the warning was sent – but even that hasn’t been established.

“Listed firms, in particular, have significantly greater compliance duties than individual investors, so you can assume they have to think about how to comply with this legislation in the best way possible,” Ma added.

That lack of clarity has persisted for nearly a week.

In an emailed answer to inquiries, Kevin Desouza, professor of business, technology, and strategy at Queensland University of Technology, said, “This is a space I continue to watch since we don’t know what is going to happen.” “Right now, there are too many variables in play to say what the possibilities are with any certainty.”

Clients have been calling, emailing, and messaging people like El Lee, chief operating officer of Singapore-based crypto-asset custodian firm Digital Treasures Management, because of the uncertainty.

“Honestly, no one saw this coming,” Lee said in a video conversation with Al Jazeera about the speed with which the actions were taken, not that laws would be tightened in the future. “I believe the most important aspect this time is that it prohibits the use of virtual currency.”

Under the new laws, anyone attempting to convert crypto into Chinese yuan will find it “pretty impossible,” according to Lee. Other options for converting Bitcoin to stablecoin on a decentralized exchange and then swapping it for fiat cash outside of China may exist, he said.

There are also doubts about how the legislation would address historical difficulties with intermediaries who engaged in trades and maybe committed fraudulent activities — and whether such activities could be punished retroactively, according to Lee.

“The question is whether the law applies backward,” Lee added, noting that the new judgment came after their acts.

“Does it apply to those hypothetical cases, or is it just foreshadowing?” It’s impossible to tell whether it’s retroactive.”

Bitcoin crypto is on its way out

Crypto dealers and miners in China have been fleeing abroad since 2017, fearful of growing regulatory restrictions.

However, this year has seen a rapid increase in the number of nails driven into the crypto industry’s coffins in China.

Beginning this spring, officials began to focus their attention on bitcoin miners. Miners are in a race to verify transactions in exchange for fresh Bitcoins, and they run banks of powerful computers. Their “rigs” use a tremendous amount of electricity.

Crypto mining restrictions moved from Inner Mongolia to Yunnan to Sichuan in May and June, ostensibly to fulfill energy efficiency standards, although the majority of the energy utilized was either not grid-connected or surplus supply not supplied to the grids.

Sales of cryptocurrency mining equipment have taken a dip, which is unsurprising. And, starting on October 8, Alibaba Group will prohibit all sales of such equipment, as well as any other gear or software used in mining and trading, on its worldwide wholesale platform.

In Shenzhen’s famous Huaqiangbei market, where practically any electronic equipment or component can be found within a few city blocks, the industry’s impending mortality is also on show.

Two levels of SEG Plaza were mostly occupied by crypto mining equipment and software manufacturers a year ago. The handful that remains is now mostly strewn about the fourth level, surrounded by stalls selling printers, walkie-talkies, secondhand PCs, and other electronic devices.

“Regulations have impacted our business,” claimed a crypto mining machine dealer who did not want to be identified. “We can’t do much about it right now, and we can’t sell here, but we’re still selling overseas.”

The salesman believed that just around 40% of the crypto machine shops in the building were still open and that the majority of his shipments were currently heading to Russia.

According to Lee, the biggest trend he’s noticed in recent months is that crypto-related businesses are either leaving China or have already left. Miners are seeking new sites where they will be welcomed, and crypto-related trading companies are establishing themselves in jurisdictions that have crypto-friendly regulatory frameworks.

For miners, this includes Kazakhstan, Uzbekistan, and even Texas in the United States, while crypto trading companies have made significant investments in Southeast Asia.

“Right now, Singapore is one of the hotbeds for that,” Lee said of the transformations, which are expected to accelerate as the coronavirus pandemic limitations lessen.

With blockchain, everything is possible

Questions remain about how the government’s crypto crackdowns would affect innovation in areas like blockchain, as well as financial flow flexibility for China’s IT industry, which has been increasingly stifled by Beijing.

Due to national worries about cross-border financial flow and potential tax evasion, Beijing has become increasingly focused in recent months on establishing China’s digital yuan currency as the top dog, with all other cryptocurrencies considered dangerous.

“It has no impact on global innovation,” Desouza explained. “However, these moves will put Chinese businesses at a disadvantage. The government, on the other hand, believes that its centrally controlled digital money method will outperform the existing bottom-up emergent technique. They have an advantage because of the simple concerns of scale at which the digital currency will be deployed.”

According to Ma, China’s efforts can be interpreted in part as a split between the US and China in the evolving battle for technological supremacy, as well as a bifurcation inside China itself.

While the Chinese government is increasingly avoiding cryptocurrencies owing to potential financial stability issues, it is nevertheless strongly encouraging blockchain-related technologies, which are vital to the future digital economy.

Ma refers to a speech given by Chinese President Xi Jinping on the same day that the cryptocurrency and mining notice was released. The focus of Xi’s address was on science and technology innovation.

He explained, “To me, it shows the government is focused on true technical innovation rather than financial trading-driven innovation.” “So, if you see the US side focused on the trade aspect of crypto in the future, and the China side focusing on the technology side of blockchain in the future, that’s a fascinating bifurcation,” he says.

 

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