Every time Beijing announcing a downturn in their industry, the ongoing joke among cryptocurrencies is that China has already banned cryptocurrency 18 times. Since 2013, Chinese government agencies have issued a series of increasingly restrictive but never decisive legal bans on various aspects of crypto; China’s crypto industry has been thriving all along. It turns out that the 19th time may be the charm.
On September 24, the Central Bank of China and its National Development and Reform Commission released two documents. One banned cryptocurrency mining after a previous crash in May, and the other declared all cryptocurrency transactions illegal and all companies providing cryptocurrency trading services to Chinese citizens engaged in illegal economic activity. Some of the usual nonplussed aplomb was posted on crypto Twitter, but the general reaction to the ban is that China this time is serious.
“The ban is sweeping, absolute, comprehensive. It’s not focused on a partial aspect, ”said Jonathan Padilla, co-founder and vice president of Stanford University’s Future of Digital Currency Initiative, which has conducted field research at China’s central bank. “And it looks like top-level officials are taking this on.” The authorities that sign at least one of the two documents include the Ministry of Public Security, the Supreme Court and the Supreme Court Procuratorate – suggesting that aggressive enforcement is likely.
Several exchanges, wallets and other cryptocurrency companies have announced that they will stop providing services to mainland Chinese users and enforce a sweeping block of all Chinese IP addresses on their services. Given the wording of the official document explicitly designating overseas stock exchanges for Chinese residents, it seems that the industry has taken a cautious approach. “How much individual citizens will be threatened by the new level of enforcement remains to be seen,” said Luisa Kinzius, director of China’s focused consulting firm Sinolytics. “[But] the notice is also aimed at any Chinese citizen who works for crypto-related companies abroad, declares their work illegal and puts them at risk of being legally investigated. “
The tightening of China’s repression of bitcoin and other cryptocurrencies would always happen. The boundless and unregulated nature of crypto runs counter to the Chinese government’s vision of a state-dominated economy. In addition, Beijing sees cryptocurrencies as the epitome of thoughtless guessing. “The Chinese government just reiterated in its new 14th five-year plan — China’s economic planning for the next five years — that the financial system should primarily serve the real economy, not speculation,” Kinzius said. “China is very hesitant about pure financial speculation because of concerns about financial stability – and of course cryptocurrency is largely driven by speculation.”
These general concerns are now exacerbated by recent developments. In September 2020, China announced its plan to end its annual growth rate 22CO2 emissions by 2030 and become carbon neutral by 2060. This inevitably results in a reduction in cryptocurrency mining, the energy-consuming and often coal-fired process used to maintain a cryptocurrency network that Chinese authorities consider to have almost no benefit to the country’s economy. On the other hand, China is currently piloting its Digital Chinese Yuan, a state-sponsored digital currency designed to offer the convenience of the cryptocurrency at the surface level without any of the benefits of privacy and decentralization — or no doubt its lack of government oversight. From Beijing’s point of view, it makes no sense to allow the coexistence of the digital Chinese yuan with other virtual assets. China, Kinzius says, was interested in “avoiding competition [from] cryptocurrencies, ”especially as it prepares to make the Chinese Chinese yuan available to foreign users during the Beijing 2022 Winter Olympics.
“To ensure the successful adoption of the digital currency, China has no interest in other growing, attractive alternative payment options,” she says.