China Crypto Ban? Here’s What Happened

A China Crypto Ban? Is it legit or is there more to it?

China has already announced 18 crypto bans since 2013, causing FUD in the crypto space time and time again. But those bans were never conclusive or absolute, allowing users to continue buying and selling crypto without any restraints. This time though, China’s ban on cryptocurrency seems legit and leaves no loopholes or exceptions to be exploited legally.  

In May this year, the Chinese government claimed that they will soon ban crypto trading and mining. However, at that time, people weren’t sure what it meant or how it would go down, if at all. But on September 24, the People’s Bank of China, along with its National Development and Reform Commission, finally declared all crypto transactions illegal, along with banning mining as well.

The China Bitcoin and crypto ban has since caused a great deal of FUD in the industry. In this article, we will discuss what we understand about China’s future plans from the ban, what it means for crypto holders in China, and how it affects Bitcoin and other cryptocurrencies outside of China. 

China’s plans for the future 

Many theories and assumptions are flying around on why China took this step to ban crypto. According to the People’s Bank of China, they banned crypto because it “seriously endangers the safety of people’s assets.” 

This makes sense since China never liked financial systems based on pure speculation, as it can threaten economic stability, something that China is highly prioritizing. If you look at China’s 14th five-year plan, it clearly suggests that China is reluctant towards financial systems based on speculation and systems that don’t directly serve the real economy. 

As for outlawing crypto mining, China doesn’t believe it adds any real value to the overall economy. And since mining is a highly energy-consuming activity that also generates massive CO2 emissions, it made perfect sense to ban it, as it aligns with China’s vision to become carbon neutral by 2060. 

So far, these are motivations to ban crypto admitted and made transparent by the Chinese government. However, many people believe that there is another side of the story, an ulterior motive.

China never admitted nor mentioned this, but it’s pretty evident that China is preparing for the launch of their own CBDC (Central Bank Digital Currency), the Digital Chinese Yuan, and that this was one of the steps building up to it. 

But what does crypto have to do with the Digital Chinese Yuan?

It’s simple. 

Crypto is a far better and stronger competition to China’s digital currency since it’s decentralized and pretty much free from government surveillance, which is not the case with Digital Chinese Yuan.

China’s CBDC has been in the works for quite some time now, and they have recently released a whitepaper as well. So, the launch of Digital Chinese Yuan doesn’t seem too far, which makes now the perfect time to make a move like this.  

However, despite all of this, the Chinese government is still very much interested in blockchain technology. They have shown their interest in exploring the technology for further innovation and development on multiple occasions. 

 

How the ban affects Bitcoin and Crypto outside of China

As expected, the crypto community saw a massive drop in Bitcoin prices due to the FUD. Before the ban, the Bitcoin prices were around the $45,000 range. Right after the ban, it dropped by 9%, bringing the price down to the $41,000 range. 

However, just like every other time in the past when China created FUD, the drop in Bitcoin prices didn’t last long, and it quickly got back to its initial prices before the ban. 

However, Bitcoin prices are not the only thing that got affected by the ban.

The ban forced many exchanges, wallets, and other crypto-related platforms and businesses, especially the decentralized ones, to block Chinese IPs. And as for decentralized finance and exchanges, we’ll come to that later. 

On a brighter note, the China Bitcoin and crypto ban news is not all bad. 

Do you know why?

Because many financial experts and industry leaders believe that blockchain is the future, and so is cryptocurrency. With that knowledge, many people in China wouldn’t want to lose the opportunity to capitalize on crypto and blockchain, forcing them to move out of China and contribute to other countries and their economies. 

If anything, this decision by China is only going to benefit other countries that are pro-crypto in the long run. 

What’s the future for Chinese crypto traders

Right now, the lines are still pretty blurred on if the ban means that the possession of cryptocurrency is also illegal, and if not, how can Chinese crypto holders cash in their crypto assets bought prior to the ban. 

Since there haven’t been any guidelines out yet addressing these doubts and questions, it seems that we’ll just have to wait for further developments. 

Despite the ban, many experts and journalists believe that the use of crypto will most probably continue.

It will happen in the following two ways:

  1. DeFi (Decentralized Finance) & DEX (Decentralized Exchanges)
  2. By moving in and out of China

Both approaches have their limitations, especially the second one. 

It’s highly unlikely someone would go through all the trouble. To pull it off, one would have to move out of China, make a profit trading crypto, convert it into fiat currency, and then go back again to China. It’s just too complicated, plus there are many more limitations to this approach. 

However, DeFi and DEX, on the other hand, seem like a more realistic possibility. 

People in China have been using illegal and banned technology, applications, and websites for a long time with tools like VPNs. Plus, the entire point of a decentralized exchange, unlike centralized exchanges like Binance and Coinbase, is that they don’t have a central authority to answer or report to. 

But there’s only one problem. 

DEXs may not be as decentralized as you might want to think because just like when the US government felt the need, started tracking down even the developers of Uniswap, a DEX, there is no guarantee that China wouldn’t do the same if they felt the need too. 

Nonetheless, it will be interesting to see how the crypto scene develops in the upcoming years in China.