China’s efforts to restrict cryptocurrency trading and mining add to wild moves in bitcoin and other markets.
Already down sharply from the records set this year, bitcoin and other digital currencies sold off strongly last week after Chinese authorities renewed pressure on the country’s banks and payment companies to reduce cryptocurrency-related transactions. Markets stumbled again after a powerful super-regulator chaired by Vice Premier Liu He pledged to crack down on bitcoin mining and trading. The price of bitcoin fell below $ 32,000 early Monday, compared to more than $ 44,000 a week earlier.
“The Chinese government dislikes the highly volatile and speculative nature of the cryptocurrency market,” said Fan Long, co-founder of Conflux, a government-backed public blockchain network in China. He said authorities may take further steps to restrict or eliminate the means for Chinese citizens to exchange yuan for cryptocurrencies in the over-the-counter market.
Huobi, a major cryptocurrency exchange, said on Sunday that it would stop selling mining machines and related services to new users in mainland China. It will also suspend futures contracts, exchange traded products and leveraged investment products for new users in a few countries and regions. OKEx, another popular digital currency exchange, said on Monday that its own token, OKB, could no longer be exchanged for the Chinese yuan.
Seychelles-based spokespersons for OKEx and Huobi said they strive to be in compliance with regulations in the jurisdictions in which they operate and are committed to serving and protecting people. interests and assets of their clients. Both exchanges have operations in multiple countries.
“Crypto-related activities have posed two serious challenges in China,” namely financial stability and energy consumption, said Shen Wenhao, a Beijing-based partner at JunZeJun Law Offices. He said it was the first time the cabinet-level financial regulator has publicly mentioned bitcoin mining and linked it to financial stability. Recent messages from regulators “could signal the start of a series of new moves by the Chinese government to crack down on crypto-related activity from multiple angles,” he said.
China, the most populous nation in the world, has been a hotbed for cryptocurrency trading and mining. In 2017, concerns about capital flight led Beijing to impose bans on Chinese cryptocurrency exchanges and digital currency fundraising, known as initial coin offerings.
Authorities then ordered Chinese financial platforms and institutions to stop providing virtual currency trading services. They have also ordered operations that produce – or mine – cryptocurrency to shut down, although industry participants say mining still takes place in parts of the country, such as the southwestern regions. . Authorities in Inner Mongolia, a Chinese border region, last week asked for the public’s help in reporting cryptocurrency mining activities.
The crackdown on Chinese bitcoin miners will not affect the supply of bitcoin, as the crackdown on metal miners, for example, could affect the supply and therefore the price of metals. This is because the Bitcoin algorithm releases new bitcoins to miners at a predetermined rate, regardless of the number of miners competing for them.
Cryptocurrency exchanges that operate overseas are accessible to people in China using VPNs that help them bypass the country’s internet restrictions. Some exchanges have made it easier to trade bitcoin and other digital currencies with China’s national currency, the yuan.
These transactions generally take place over-the-counter on what is known as the peer-to-peer market. They have proven difficult for Chinese regulators, banks and payment companies to follow because they involve direct money transfers between individuals.
In essence, a person who wants to buy bitcoin using the yuan can be matched with another person who is looking to sell the digital currency and receive yuan. The buyer sends yuan directly to the seller using a mobile payment app or online bank transfer, and the seller authorizes the exchange to release the bitcoin to the buyer after confirming payment.
Records on multiple cryptocurrency platforms last week showed hundreds of people eager to buy and sell cryptocurrencies, including bitcoin, tether, and dogecoins, using their yuan-denominated accounts. in banks and the popular Chinese mobile payment applications WeChat Pay and Alipay in peer-to-peer transactions.
Lennix Lai, director of OKEx, said that while China has banned cryptocurrency exchanges and ICOs within its borders, it has not banned the possession of digital currencies by its citizens. “People are allowed to mine bitcoins, they can transfer bitcoins to others and settle their trade in renminbi,” Lai said, using another name for the Chinese currency, adding that “there is a lot bitcoin natives and believers in China. “
In response to a question from the Wall Street Journal, a spokesperson for Ant Group Co., which owns Alipay, pointed to a statement it issued in 2019. “Alipay closely monitors OTC transactions for identify irregular behavior and ensure compliance with relevant regulations. . Any transactions on the platform identified as being related to bitcoin or other virtual currencies will cause payment services to stop, the statement said.
“We take our compliance obligations seriously and will continue to take action against any illegal transactions,” said a spokesperson for Tencent Holdings Ltd., owner of WeChat Pay.
Some Chinese banks have also cautioned their customers against using their accounts for cryptocurrency transactions. China Citic Bank Corp.
, for example, said in an April statement that no institution or person can use the bank for transactions related to assets such as bitcoin and litecoin.
“China is clearly worried about the volatility of the crypto markets,” said Claire Wilson, a partner at the Holland & Marie consultancy in Singapore. “In theory, it would be possible for a state to issue a total ban on crypto. However, in practical terms, such a ban would be extremely difficult to enforce, ”she said.
‘[It] could mark the start of a series of new moves by the Chinese government to crack down on crypto-related activity from several angles.
As early as 2013, a consortium of Chinese government agencies and regulators issued warnings about the anonymity, borderless and unregulated nature of bitcoin and told domestic financial and payments institutions not to conduct any activities related to the bitcoin. bitcoin. The authorities said they wanted to protect the legal currency status of the yuan, prevent money laundering, and maintain financial stability.
Last Tuesday, three Chinese self-regulatory groups issued a similar notice and said financial institutions must step up their surveillance activities and end and report virtual currency-related transactions that violate the country’s laws. The trio – the National Internet Finance Association of China, the China Banking Association and the Payment & Clearing Association of China – also warned of sanctions for companies that do not comply.
The recent warning “is probably the harbinger of more formal crypto regulation,” said Winston Ma, an assistant professor at New York University’s School of Law and former chief executive of China Investment Corp., said on sovereign wealth fund of the country. He said China has also stressed the need to regulate fintech since Ant’s IPO was suspended in November.
—Jing Yang contributed to this article.
Write to Chong Koh Ping at [email protected]
Corrections et amplifications
Claire Wilson is a partner at the consulting firm Holland & Marie in Singapore. An earlier version of this article mistakenly called it a law firm. (Corrected May 24)
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