What does China’s ban on Bitcoin mean in the world of cryptocurrency?
As early as 2013, the Chinese government has taken steps to curb the rise of cryptocurrencies, but during the crypto market boom in 2021, it banned them altogether and instead encouraged the use of China's state-backed digital yuan, which is still being rolled out slowly.
Recently it took a major step in its crackdown on Bitcoin and maybe rather strategic in addition to rolling out its own “state backed yuan” after its central bank and other regulators said all crypto-related transactions need to be prohibited. According to the statement by several government agencies, a tough new regime will reinforce the ban on mining, warn of stiff penalties for traders and financial transactions involving cryptocurrencies, and resolve to "vigorously combat criminal activities involving virtual currencies."
The Chinese government declared that digital tokens were illegal and could not be bought and sold on the market. In addition, overseas virtual currency exchanges that provide crypto services to Chinese residents are also illegal financial activities. Additionally, companies dealing in crypto derivatives are also barred from doing business in China.
Beijing has declared all crypto-related businesses and transactions illegal. As a result of the announcement, cryptocurrency markets fell an average of 5%, but has managed to bounce back extremely well and at the time of writing has just reached an all-time high! Among the central bank's statements were that cryptocurrencies (including specifically Bitcoin and Tether) are not fiat currency.
Chinese authorities subsequently released a statement stating “resolutely to clamp down on virtual currency speculation, and related financial activities and misbehaviour in order to safeguard people’s properties and maintain economic, financial, and social order,”.
All this seems quite paradoxical considering China is home to some of the world’s largest crypto mining services. So this puts these businesses under great threat in China in turn opening the door to the rest of the world to provide much-needed services in terms of creating more cryptocurrency to circulate. Filling the great demand that will most likely open up now as services are being clamped down on within China. To reiterate the point, the National Commission said it is beginning a nationwide cleanup of cryptocurrency mining stating it is “imperative” to wipe out mining in the region.
Although, this is not the first time China has declared a crackdown on cryptocurrency-related activities, until now so many government agencies had not collaborated on such efforts.
An important point to note is that China has banned many things that have gone on to be vastly successful, namely Google, YouTube, Whatsapp, Facebook, Netflix, Zoom, Reddit, and many other internet service products. So the list of businesses and services that have been banned in China is vast and expansive and definitely not a precursor for success. In fact, you could say quite the opposite namely, the massive internet companies that have taken hold throughout the world and have been majorly profitable that are currently banned in China.
If anything this ban gives you a hint at how successful bitcoin and blockchain as a whole will be and would suggest that it presents a buying opportunity. It is inevitable that crypto assets and blockchain technology will be used in the future, that is certain. There is no question about it. As technology advances, platforms and applications have demonstrated their ability to function as advertised, to deliver value to users, and to allow a more equitable wealth creation process.
Capital flows to places in which it is welcomed. When more restrictive regimes place restrictions on these items, free-market economies should embrace them. For example, on the opposite side of the world, you have a country that has taken completely the opposite position when it comes to cryptocurrencies. The government of El Salvador has recently harnessed the power of a volcano to mine Bitcoin and declared Bitcoin their national currency.