China cracks down further on cryptos

It’s no secret China is attempting to become the world’s first cashless society. According to the country’s Ministry of Industry and Information Technology, mobile transactions reached more than $12.8trn in the first ten months of last year alone – representing an increase of almost 40% from 2016. QR codes, P2P apps and cryptocurrencies are disrupting China’s payments landscape and pushing markets to evolve at break-neck speed.

Yet it appears the country’s regulators are less than keen on the rapid evolution of cryptocurrencies. That’s why the government has just unleashed a string of measures designed to stifle crypto trading and minimise the impact of various digital currencies on China’s otherwise carefully manicured economy.

After years of reactionary regulation, Beijing began to shift its position on the domestic trade of cryptocurrencies at the end of 2017, when the People’s Bank of China decided to ban initial coin offerings. Despite the move, a handful of Chinese-based exchanges were able to continue to provide crypto-to-fiat trading services to domestic customers. Other Chinese exchanges simply attempted to circumnavigate the rules by relocating to different countries while offering the same services to Chinese customers from abroad.

Yet the newly formed and ominously named China National Fintech Rectification Office is poised to shut those service providers down after announcing last week it had identified 124 overseas trading platforms illegally offering crypto trading services to Chinese domestic customers. Because of the foreign IP addresses associated with the exchanges, the government made clear it would immediately block all access to those platforms.

Regulators also said they would be permanently shutting down all domestic websites and associated WeChat messaging app accounts that appeared to be offering any crypto trading services whatsoever to Chinese customers. Meanwhile, the country’s media outlets positioning themselves as digital currency news sites have now been banned from operating on WeChat.

Just a few days after the ban was announced, the owner of WeChat’s mobile payments rival Alibaba made a similar move, outlining plans to beef up its monitoring capabilities and vowing to prevent merchants and users from using its Alipay gateway app to facilitate over-the-counter crypto trading.

Meanwhile, the People’s Bank of China, the Banking Regulatory Commission, the Ministry of Public Security, the Central Cyberspace Affairs Commission and the State Administration for Market Regulation issued a joint statement on Friday warning traders against all foreign crypto projects, accusing them of misusing Chinese investment to manipulate crypto prices and generate illegal profits. The statement also elaborated on plans to ban newer ways to speculate on cryptocurrencies, such as initial exchange offerings, fork offerings and miner offerings.

Yet believe it or not, this flurry of suppression isn’t actually the result of a Chinese disdain for cryptos – but rather, evidence of the administration’s hyper-focused optimism in favour of them.

Reports indicate China’s central bank is currently engrossed in its own project to develop a new sovereign cryptocurrency for China. The People’s Bank of China obtained more blockchain patents in 2017 than any other organisation in the world, and the government is already piloting studies to establish relevant frameworks. Bearing in mind China’s current position as the globe’s leading cashless society, such a currency could ultimately blow relative incumbents like Bitcoin or Ethereum out of the water – although no timetable has been released indicating when (or if) China’s nationalised cryptocurrency will actually end up in circulation.

When Chinese authorities launched their campaign to rid the country of foreign cryptos in 2017, the move knocked 20% off the price of Bitcoin. Yet the Yuan’s share of global Bitcoin trades has subsequently plummeted by 89 points, and according to China’s central bank now account for just 1% of all transactions.

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