China Restates 2017 Ban, Adversely Affecting an Already Fragile Market

This came on Tuesday in a joint statement by three industry bodies and further affected the crypto market.

The Measures

China has affirmed its position in respect of the use of cryptocurrency. Financial institutions and payment solutions are prevented from providing services related to crypto transactions. Investors were also warned against speculative crypto trading. In the wake of this news, it further fueled the fear, uncertainty and doubt that has been lingering in the crypto space plummeting the price of bitcoin to a 24 hour low of $30,415. 

Reuters has also stated the recent volatility in the following quote,

‘Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,’ 

This ban prevents institutions such as banks and online payment solutions from offering services related to cryptocurrency such as registration, trading, clearing and settlement. This position is not any different from their prior 2017 ban; nevertheless, it has adversely affected an already jittery market. The Chinese are not prevented from holding cryptocurrencies. 

Scope of 2017 Ban

In 2013 the Chinese government prevented financial institutions from handling bitcoin. This ban was issued by the China Securities Regulatory Commission. In 2013, the crypto market was relatively young and had not seen the boom and mass adoption that we are seeing today. In 2017, the Chinese government again declared their position in respect of cryptocurrency. This also coincided with the 2017 bull run, which was fueled by Initial Coin Offerings (ICO). The Chinese government banned services related to crypto currency and declared that ICOs are illegal. 

Sequence of Events 

2013 – China does not recognise Bitcoin as a legal tender and defined the cryptocurrency as a virtual commodity. Financial Institutions are prevented from handling bitcoin but its people can freely trade the commodity. 

September, 2017 – China started a massive crackdown on activities related to cryptocurrencies citing concerns on the financial risks associated with it. 

February, 2018 – China to block all websites offering crypto trading and Initial Coin Offering.

May, 2020 – China reiterates the 2017 ban and this news was captured by Reuters in their article ‘Explainer: What Beijing’s new crackdown means for crypto in China’

The ‘New’ Measures

In the article by Reuters, it reported the measures that were implemented and 3 areas have been highlighted. First, the institution must not accept virtual currencies and use them as means of payment or settlement. Secondly, institutions are prohibited from providing cryptocurrency related services such as saving, trust/pledging services and crypto related financial products. Thirdly, financial institutions are to step up monitoring of money flow involving cryptocurrency trading. 

These measures are not new. It has been the same position taken by the Chinese government since 2017. The spread of the ban was a massive one in 2017. Although specifically targeting the ICO boom, the ban was wide enough to cover other related services. The ICO rules in 2017 prevented direct or indirect services for ICOs and cryptocurrencies which includes registration, trading, clearing or liquidation services. 

Real Change

In essence, the FUD (fear, uncertainty and doubt) that permeates the market is the real cause of the recent dip. The article by Reuters was only a trigger to fuel an already jittery market. 

@QWQiao a member of the @DefiAlliance and a former entrepreneur in Messari was correct to point out that the fear in the market was irrational. Crypto has never seen such massive adoption. Government clampdown, even if true, will affect the market temporarily but it will not stop the exponential growth that has taken place thus far. In times like this, personal conviction and understanding is crucial to fully grasp the scale of this behemoth.

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