Cryptocurrency In China: Is Crypto Illegal In China?
Since the emergence of cryptocurrencies, China has become one of the leading countries in crypto mining and buying Bitcoin. Every Lunar New Year, crypto enthusiasts in the country withdraw crypto from their accounts to buy gifts for their loved ones, and this always results in a bear market. With China's large population, it's no surprise that the crypto market reacts to every new law or major crypto event in the country. So what do we know about China's famous crypto ban? Is crypto illegal in China?
How many times has China banned cryptography?
Chinese government authorities have imposed a series of strict, but never final, legal restrictions on various aspects of crypto in the years since its inception. Meanwhile, China's crypto industry is booming. Beijing has banned the cryptocurrency 18 times each time it seeks a new crackdown on bitcoin. The country has had a hostile relationship with the crypto industry since 2013, when it introduced the first crypto ban.
On December 5, 2013, the People's Bank of China (PBOC), the Ministry of Industry and Information Technology and other financial regulators jointly issued a notice prohibiting banks from conducting transactions involving BTC. According to a statement released at the time, bitcoin was considered a "distinct virtual commodity." The reason for the ban is that digital assets are not endorsed by any state or central government. And so China began its stance on Bitcoin.
In January 2017, the country's central bank launched an investigation into crypto exchange activity in an effort to support the yuan's decline and prevent illegal outflows from China. The investigation focuses on money handling and anti-money laundering. On September 4, 2017, the country's government decided to ban initial coin offerings (ICOs). ICOs have become the most popular part of the crypto industry today.
In April 2019, China's National Development and Reform Commission (NDRC) listed bitcoin mining as an "undesirable" industry on the first list of sectors that could be encouraged, restricted or closed by local governments. The computer-based process used to verify bitcoin transactions to receive newly created bitcoins as a reward is a list of industries the agency considers highly polluting.
In 2020, China will ban cryptocurrency again.
For most of 2020, the Chinese government has been tightening its grip on crypto exchange activity within its borders in an ongoing campaign to combat money laundering and fraud. In August, the PBoC announced its intention to ban more than 100 foreign websites offering crypto exchange services.
In 2021 China's crypto industry's troubles began in May when the State Council doubled down on previous crypto policies and called for restrictions on crypto mining and trading. The provincial authorities of Inner Mongolia, Xinjiang and Sichuan, which were previously the main centers of BTC mining, began implementing policies that restricted the work of BTC miners. After the declaration by the state assembly, the state government started taking active steps to eliminate crypto mining. Regulators cite the energy-intensive nature of bitcoin and threats to the country's environmental goals as the main reasons justifying the new move.
In Similar to the crackdown on crypto exchanges in 2017, Bitcoin miners were forced to either shut down permanently or relocate to other crypto-friendly countries. While 50% of the world's Bitcoin mining power was generated in China before the crash, the global BTC economy went into meltdown. Between 2019 and 2020, more than $50 billion in cryptocurrencies left the accounts of East Asian countries outside the region, according to data platform Chainalysis Blockchain.
Last crypto ban of 2021
In 2021, the government is doubling down on its crackdown on cryptocurrencies. In May, China banned institutions and companies from offering cryptocurrency-related services and warned investors against speculative cryptocurrency trading. Three industry associations (China Banking Association and China Payment and Clearing Association and China National Internet Finance Association) have issued strict statements banning services such as registration, clearing, settlement and trading.
In addition, government officials have tried to pressure the industry by warning that they will have no protection when trading bitcoins and other currencies online. In June, the government asked payment platforms and banks to stop supporting transactions and banned cryptocurrency mining. Finally, two documents were released in September.
It is now illegal to legally exchange currency and virtual currency, buy or sell virtual currency (including foreign sales to Chinese residents), and provide information (including pricing services and technical support) about virtual currency.
With the latest ban, the government hopes to combine offline and online investigations to better detect and investigate cryptocurrency trading activity. Financial institutions are prohibited from providing cryptocurrency services, including opening accounts, transferring funds, and other activities that facilitate the use of cryptocurrencies. Online companies and websites are prohibited from offering payment services in cryptocurrencies. Cryptocurrency ads are also banned by tracking related keywords.
Crypto mining in China has also been hit hard. China in 2010 As of September 2019, it claims to have consumed 75 percent of the world's energy consumption in bitcoins. By April 2021, this figure had fallen to 46 percent. Many companies in the country have stopped working. Bitcoin mining machine manufacturer Bitmain has stopped selling miners in China.
Cryptography ban in China: Reasons
First, the Chinese government considers it an unsustainable investment and has concerns that it could be used for money laundering or tax evasion. Like many other countries, the Chinese government is skeptical of digital assets. The People's Bank of China said cryptocurrencies "greatly threaten the security of people's assets".
Second, despite strict capital controls, Chinese authorities are always on the lookout for capital flight. China has imposed an annual limit of $50,000 on foreign currency purchases as part of already strict capital controls. Tether (USDT), a cryptocurrency pegged to the US dollar, is a major contributor to capital flows from East Asia. Tether gained popularity in 2017 following the PBoC's restrictions on crypto exchanges in China. Trading Bitcoin for Tether was banned by the PBoC on cryptocurrency exchanges in 2017. However, Chinese cryptocurrency traders bought Tether by trading invisibly with OTC brokers or using foreign bank accounts.
Third, the Chinese government has said it is deeply concerned about the impact crypto mining has on the environment and people using cryptocurrencies to cheat.
How are things now in the Chinese crypto market?
Following a government crackdown on the industry last year, mainland China experienced a 31% drop in digital token transactions between July 2021 and June 2022, according to the latest East Asia report from blockchain consultancy Chainalysis. The report shows that China is the strongest user of centralized services, ranking second in terms of total PPP regulated transactions, both aggregate and retail, despite the ban.
This may indicate that the government's move to ban cryptocurrencies is ineffective or short-lived. Despite transactions falling to $67.6 billion over the past 12 months, the country remains the largest cryptocurrency market in the region. Crypto trading volume in Hong Kong, which regulates cryptocurrencies separately from Beijing, rose 9.5 percent.
It is also worth noting that crypto ownership is not prohibited in China. Of course, ownership of Bitcoin (or any other cryptocurrency) in China is still legal and protected by law. The Chinese government has yet to adopt a comprehensive official position on Web 3. But at a conference in Shanghai in early September, Chinese Academy of Engineering member Zhang Ping Webb3 raised concerns about China's strategic interests.
While China's crackdown on cryptocurrencies is aimed at curbing capital flight and money laundering, the country's central bank's digital currency offering is also part of the government's strategy, industry observers say. In September 2022, the PBoC announced that the digital yuan, also known as e-CNY, had reached 100 billion yuan in transactions as of August 31. It will be tested in 23 cities in mainland China and will be expanded to other provinces in the coming months.
Conclusion
Recent news appears to provide further evidence that cryptocurrencies are not completely suppressed in China. Also, as of January 2022, China regained its position as the second largest Bitcoin hashing speed provider. Paradoxically, while China has been successful in banning cryptography, it is also very optimistic about blockchain, the digital ledger technology that underpins most cryptocurrencies. Other new changes may occur in the country and change things again.
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