As one of the largest economies in the world, China’s stance on crypto has always had a profound effect on the crypto market. Nevertheless, China’s historical relationship with cryptos is quite complex. An understanding of the reasons behind its infamous ban and the potential implications of China’s crypto ban being lifted requires investigation.
The future of crypto in China hangs in the balance, with recent signs suggesting a possible change in policy, which promises significant repercussions for the industry worldwide.
China’s history of banning crypto
China has a long history of banning crypto, with the first attempt dating back to 2013 when the People’s Bank of China (PBC) issued regulations that prevented financial institutions from transacting in virtual currencies such as bitcoin.
However, this did not make it illegal for Chinese citizens to buy, store, or send crypto. This has made it more challenging to access crypto from exchanges only.
This first ban was aimed at slowing bitcoin trading after it became so widespread that many businesses, including Baidu, the country’s largest search engine, began accepting it as payment.
In 2017, during the crypto bull market, Chinese authorities increased restrictions on crypto trading, specifically focusing on Initial Coin Offerings (ICOs). ICOs, digital tokens meant to represent an ownership stake in a new crypto project, have seen a significant increase in trading.
However, many of these ICOs turned out to be scams due to lack of regulation. To curb the ICO craze, China banned all platforms offering ICOs. If an exchange sells the ICO, they have to return the money to the investors.
In 2021, China took the most severe measures against crypto in its history. As bitcoin hovers around $55,000, China’s State Council announced a formal ban on crypto mining.
Shortly after, the hash rate on bitcoin’s network dropped by 50%, sending the price of bitcoin down to around $30,000 in the months that followed.
With the bitcoin mining ban, China’s regulatory bodies outlawed all crypto trading and transactions. It is also illegal for residents to send crypto and for businesses and banks to accept coins such as bitcoin and ethereum.
Despite the ban, there is no specific policy against holding digital assets, so Chinese residents who already have crypto in a wallet are not violating any existing laws.
Why China Banned Crypto
Several factors influenced China’s decision to ban crypto. This includes:
- Consumer protection concerns due to crypto’s association with scams and money laundering.
- Unclear legal status of digital currencies.
- Possibility of capital flight.
- devaluation of the yuan.
- Environmental concerns due to the high energy requirements of bitcoin.
- The desire to control Central Bank Digital Currencies (CBDCs) and Metaverse projects.
In fact, China is actively working on an official CBDC known as the “digital yuan,” and cities such as Shanghai have pledged billions to develop national metaverse projects.
The ban had a significant impact on the global crypto industry. China’s bitcoin mining ban has resulted in a significant reduction in hash power on the bitcoin blockchain. Many bitcoin miners from China fled to countries that were more friendly to the crypto industry.
However, the total hash rate of bitcoin continued to increase in the months following the ban, and by January 2022, it was significantly higher than it was before China’s bitcoin ban.
It was also observed that mining activity in China appeared on bitcoin’s network in September 2021, suggesting that many Chinese mining pools still operate underground.
Is China Lifting The Crypto Ban?
Despite the stringent restrictions, China’s ban on crypto has not completely halted activity in the sector. Underground crypto markets have sprouted up as crypto enthusiasts are finding ways around restrictions in the country.
Recently, signs have suggested a possible change in China’s stance towards crypto.
In the latest development, there are signs that China may ease its tough stance on crypto. The news is substantial as one of the most significant shocks to the crypto market in the last few years came in 2021 when China issued its most significant crackdown on digital assets.
The action was part of a wider effort to regulate the financial technology sector. It was also in line with China’s ambition to introduce its own digital currency, the digital yuan.
The global crypto community is watching closely for signs of a possible change in China’s stance towards crypto. However, the specifics of this change are not yet clear, and how these developments will unfold remains to be seen.
It should be noted that even if China eases its restrictions, the sector will remain tightly regulated to ensure consumer protection, prevent potential financial risks, and maintain control over its digital currency initiatives.
What if China lifts the ban on Cypto?
If China lifts its ban on crypto, it will have a significant impact on the global crypto market.
As the world’s most populous country and one of the largest economies, China’s acceptance of crypto could increase global demand, boost prices, and potentially lead to wider acceptance of digital currencies Is. It could also pave the way for the return of crypto mining activities in the country, which was once the world’s largest bitcoin mining hub.
Changpeng Zhao, CEO of Binance Is said The lifting of China’s crypto ban is a “big deal”. The fact that CCTV (China Central Television) recently aired a news segment about crypto has sent ripples across Chinese-speaking communities.
“Historically, this kind of coverage led to a bull run. Saying no to the past predicts the future,” Zhao said.
Still, even banning crypto can present challenges. For example, this could lead to increased volatility in the crypto market. Additionally, it could lead to regulatory challenges as authorities grapple with issues of consumer protection, money laundering and financial stability.
The potential lifting of China’s ban on crypto is a development with significant implications for the global crypto market. But until more concrete information becomes available, the true impact of this development remains to be seen.
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