Part 3, the final segment of China’s regulation of the cryptocurrency industry.
Based on the trend of regulation, China has very methodically tried to breakdown the decentralized currency industry. First via engaging in semantic warfare by defining Bitcoin as a “virtual commodity,” thereby excluding it from the confines of “legal tender.” This stoked caution within the Chinese citizens and deterred them from using cryptocurrencies, fearing the authoritarian might of the government.
Surprisingly, the PBoC came out on the mild offensive against cryptocurrencies, rather than banning them outright, they mulled the possibility of conscious public disapproval if categorized as a “commodity.” However, this was not the case, with the market experiencing no out-of-the-norm fluctuation and no-adoption declines either.
China then began mimicking what they wanted to ban, by recruiting a team to not only study the virtual currency market but to issue a state-backed cryptocurrency market to rival Bitcoin. Interestingly, the PBoC managed to keep this project under wraps for almost two years before revealing it in early-2016. From this copy-cat move, it became clear that China was not going to let the crypto-matter slide and would pursue all means to engage in countering the digital asset.
Price changes did not manifest itself contrastingly, besides a mild increase in mid-January 2016, the price held. Interestingly, the market saw a massive surge come July 2016, by which time the China Bitcoin rumors did not hold much weight.
As the price of the top virtual currency and the collective market were witnessing unprecedented highs in the middle of 2017, China went on the outright offensive. The exchange and ICO crackdown was meant to be a huge blow to the crypto-industry but did not prove so. Crypto-trading platforms began operating via back-channels, masking operations and moving abroad to subvert the regulations. The immediate decline did cause concern in the market but it was soon forgotten as the market surged to its highest point by the end of the year, courtesy of the futures introduction by CME and CBOE, with some stating that the China crackdown had backfired.
China’s outright censorship began surfacing in 2018, first with their attack on offshore and mining activities and then their communication attacks. In March 2018, WeChat accounts saw a wave of account suspension and block, with fellow messaging giants, payment services following suit. The physical gathering focused on crypto-activities were also prohibited by the government.
As mentioned earlier, China’s iron fist on crypto-communications alongside Goldman Sachs’ trading desk withdrawal led to Bitcoin plummeting to its lowest point of the year, a level which it has still not managed to climb above. Many marked this point to be the initiation of the crypto-winter, with November and December 2018 being the undoubtable peak. Details are scant with reference to the isolated effect that the Chinese communication crackdown had on the market price, with many pointed to a continued effect of the winter.
Where do things currently stand?
The above timeline details the premise for the recently proposed mining ban. First, they came for the loyalists, who disavowed digital assets as it did not confine currencies, then they mirrored the “commodity” realizing its threat to their traditional economic system. Transactions were then the target, with ICOs and exchanges being put to the sword. As the industry grew smart, subverting regulation, the PBoC engaged in scattershot regulatory attacks in 2018, initially with miners, then offshore platforms and the inter and intra-communications between industry operatives.
Now, it looks like the Chinese government has come full circle, nipping the industry right in the bud, by proposing to eliminate the production of the digital currencies itself. It’s quite clear that the energy-conservation reason cited is a façade, as can be seen from previous regulatory actions taken by Beijing. China, like much of the more, is fearful of a decentralized currency that can disconnect financial control from traditional governance models.
A mining ban by the country that has a sheer dominance of miners will no doubt have a monumental effect on the market, as last week’s price correction hints. However, as historical price movements indicate, the cryptocurrency market often looks to contain the Chinese Dragon.
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