This September, the Chinese government banned fundraising through ICOs. A few days later the government doubled down and announced that it was banning cryptocurrency exchanges. The announcements caused the market to react and Bitcoin prices tanked by almost 6%. Other currencies also felt the brunt of the announcement. Ethereum, Bitcoin’s closest competitor, went down by almost 9% after the announcement.
The Reason for China’s Reaction
This isn’t the first time that China has tried to regulate the use of Bitcoin to its locals. In February, China prevented its people from withdrawing their Bitcoins. However, the government overturned its decision and allowed locals to withdraw their investments once again in June. The government’s directive this September, through the banning of ICOs, is a sign that China is really turning its back on cryptocurrencies.
The Head of the People’s Bank of China (PBOC) Finance Research Institute Sun Guofeng told the Chinese Financial News that the ban was required to regain control of ICOs, which he believed were being used to circumvent Chinese financial systems. “The ICO ban was necessary and timely because ICOs involve illegally issuing tokens and securities to raise funds. They involve financial fraud, pyramid programs, and other illegal activity.”
While the central bank have cracked down on raising funds through cryptocurrencies, Sun Guofeng pointed out that this would not stop research into blockchain technology. He stated that this was due to blockchain having many applications outside of cryptocurrency.
Exchanges in China are currently in turmoil as a result of the crackdown. BTCC has suspended its operations and stopped trading for all China-based customers on September 30. ViaBTC also announced that it would suspend trading on September 30. The exchange announced in a statement that this would not affect its mining pool or cloud based services.
What’s going on?
Anyone who’s closely following the attitude of the Chinese government towards cryptocurrencies will know that the ICO ban was inevitable. In an article published by FXCM on ICOs, it was mentioned that the booming ICO industry was responsible for raising £288 million ($383 million) in China in the first half of 2017 alone. However, despite its ability to easily raise funds for the country’s financial hopefuls, China sees ICOs as a major hazard to its currency’s stability.
China’s Relationship with Cryptocurrencies
Investors who are worried that mining Bitcoins will be banned in the near future shouldn’t be worried. After all, the government has never hinted or mentioned a ban on Bitcoin mining. Bitcoin clubs are becoming popular in China as the country is home to the world’s largest Bitcoin mines due to the abundance of cheap electricity. Some experts believe that “two-thirds of the world’s processing power devoted to mining Bitcoin resides in China.” Yet it is clear that the Chinese government, who heavily regulates the country’s economy, is wary of their lack of control over cryptocurrencies.
As China attacks cryptocurrencies, Japan seems to be doing the exact opposite. In an article by CNBC, the country is slowly becoming a powerhouse of the Bitcoin market. Recently, Japan formally recognised 11 businesses as registered cryptocurrency exchange operators. Charles Hayter, chief executive and founder of Crypto Compare believes that “Japan and the U.S. have proven China is unnecessary for Bitcoin to thrive.” Economic control and dominance is a key policy of the Chinese government. As the nature of cryptocurrencies put it out of their total control, it is easy to see why they have turned their back on cryptocurrencies.