As of March 2020, China has a ban on cryptocurrency transactions, but up until now it has used cryptocurrency regulations on a number of occasions to influence the price of Bitcoin (BTC). Below is a summary of how Chinese authorities’ regulations have transformed and influenced the BTC price.
Firstly, let’s take a look back at the Chinese stance on cryptocurrencies. China has maintained a consistent policy of suppressing and banning cryptocurrency distribution since 2013. Regulatory authorities’ first step in 2013 was to ban financial institutions and the like from handling cryptocurrencies, saying that cryptocurrencies gave “no grounds for valuing cryptocurrencies like legal tender, are high risk and must not be distributed as currency.” In September 2017, authorities demanded all cryptocurrency exchanges halt operations. On September 14 of that year, one exchange after another announced its closure and the BTC price plummeted by 14% in a single day. China’s BTC transaction volume had been the world’s largest until September 2017 but currently there are no transactions other than unofficial ones and it is unclear how many traders there are in the country.
But Chinese authorities have not banned mining (calculations necessary for new cryptocurrency issues and receiving cryptocurrency remuneration are permitted). Multiple major Chinese mining companies remain operating. China is also motivated regarding development of blockchains, the base technology for BTC. The Central Bank of China is moving toward created a digital yuan using blockchain technology. President Xi Jinping stated publicly on October 24, 2019 that (China) should move forward on promoting blockchain technology.” The BTC price rose 15% the following day on expectations of an inflow of Chinese money.
However, it’s important to note that Chinese authorities’ policy of banning cryptocurrency transactions remains unchanged. Proof of that is that authorities control of cryptocurrencies has if anything tightened following President Xi’s statement. In November 2019, authorities launched an investigation in Shanghai aimed at rounding up all cryptocurrency-related enterprises. In January 2020, the head of the Beijing Local Financial Supervision and Administration Bureau stated that cryptocurrencies “should not be allowed to exist.” Blockchain development is limited to purposes other than cryptocurrency-related matters, so Chinese investors have by no means come closer to being able to officially engage in cryptocurrency transactions.
One of the factors behind the misconception that Chinese attitudes toward cryptocurrencies are softening is probably the Encryption Law, which clarifies things such as the legal position of blockchain technology and came into effect on January 1, 2020.
Actually, the Encryption Law only includes blockchains as being one encryption technology and does not do anything to make business move forward easier for companies involved in development of blockchain technology for use with cryptocurrency. It is symbolic that the difference between cryptocurrencies and blockchain technology was emphasized when the Central Bank of China stated that it would strengthen control over Shanghai’s cryptocurrency business immediately after the Encryption law bill passed on October 26 last year. Even after the Encryption Law was enacted, a high-ranking authority official stated that cryptocurrencies should not be permitted to exist.
Up until September 2017, more than 90% of BTC transactions in Chinese cryptocurrency exchanges were in yuan. There were some expressions of doubt about the credibility of figures that exchanges were disclosing at the time, and there is a degree of concern over whether there are still people trading in cryptocurrencies over the Great Firewall of China and its Net restrictions, but if Chinese authorities ended their ban on cryptocurrency transactions, the impact on their price would be significant. However, that possibility remains as low as ever. Even if China focuses on blockchain technology development, it is highly unlikely that cryptocurrencies will be able to trade freely once again as long as the objective is to have a centralized structure of the Central Bank of China’s thorough control of a digital yuan.
*This article was written by FISCO.