The consequences of the crypto crackdown and what will happen next – Cointelegraph Magazine

The summer of regulatory action has now become a global phenomenon.Legislators and politicians wave their fingers and threaten industry-leading virtual asset service providers-a term Creative FATF describes exchanges, wallets, custodians and even DeFi platforms.

But when it comes to cracking down on cryptocurrencies, few places are as efficient and experienced as the Chinese government.

Unlike the United States, China’s regulators did not openly discuss this. Decisions are made behind closed doors, and announcements are made quickly, either on government websites or in speeches from well-prepared officials.

These instructions came from the highest level and were quickly reiterated and implemented by lower-level officials from provincial and municipal governments, state-owned enterprises, and financial institutions. This top-down supervision method often makes the “China ban” appear very repetitive and severe. In fact, the same regulations can be repeated dozens of times by different departments, frightening the public, but the additional impact on the industry is small.

What’s the problem this time?

Although the possession of cryptocurrencies has never been officially prohibited, there may be a need for reforms in other areas of the industry. Marvinston, former managing director of China Investment Corporation and head of North America, said that the purpose of the Chinese government to promote these regulations is to protect consumers, get closer to carbon neutral goals, and achieve greater financial stability.

Although the last reason is more subjective, it is undeniable that China’s speculative mining and speculative retail investors were basically out of control at the beginning of the year.

Ma will be one of the first to notice the effectiveness of the changes that are taking place, especially for the mining industry, he told the magazine:

“So far, the impact on energy is the most obvious: after the central government launched a cryptocurrency crackdown in May, major coal power producers such as Inner Mongolia and Xinjiang, which were previously China’s largest cryptocurrency mining centers. China is the first Quickly formulate local rules to clean up one of the areas for mining companies.”

This will not be a short-term adjustment.Most large mining companies have moved abroad, and the overall BTC mining power is still Down This is down about 40% from the spring high before the crackdown. Energy and climate policies are the focus of China’s most important five-year plan. Released This spring, the importance of clean energy consumption has been consolidated for the foreseeable future.

Although it is important to the crypto community, mining does not contribute much to the country’s GDP. Income of Chinese miners Only 7 billion US dollars short In the 12-month period before June, this number was too small to provide the government with motivation.

Revenue from ride-sharing app Didi More than three times as much as oneself In 2020, the Chinese government has almost no hesitation Blow After it appeared to provide user data to US regulators, it was on top. The Didi app has been removed from the domestic app store. If Didi fails to resolve its legal issues, competitors are now lining up to fill their huge market share.

Although Chinese miners are making a fortune, they are far from enough to avoid government supervision (data from June 2021)

Sally Wang, vice president of portfolio marketing at Sino Global Capital, pointed out that although Chinese regulators do not tolerate risk areas that threaten financial stability, blockchain use cases at the national, regional, and city levels have increased significantly.

“We have seen miners leave China, and we have also seen Alibaba and other large financial technology companies experimenting with NFTs. China’s token-less blockchain projects are growing rapidly.”

This type of development enables participants to continue to contribute to China’s healthy blockchain ecosystem, and local governments support large-scale events such as World Blockchain Conference In Hangzhou and upcoming Shanghai International Blockchain Week In September.

Decline in regulatory influence

Primitive suppression The 2017 policy of banning ICOs and exchanges captured the crypto industry in a fragile period. At that time, most of the world’s trading volume came from China or occurred in Chinese exchanges, and the large trading volume was registered and traded in mainland China. This leaves them at the mercy of the authorities and teaches the industry a valuable course on managing geographic risks.

Since then, major industry players such as Binance, Huobi, and OKEx have begun to set up companies in places where regulators are more open, such as Hong Kong and Singapore. Subsequently, these exchanges are now slightly out of the jurisdiction of the Chinese government, as long as they are not too prominent when recruiting Chinese users.

Back to 2017: This Cointelegraph chart shows how terrifying the industry is after the future of many large exchanges has been questioned.

As more and more industries move overseas, the influence of regulators is waning. Unfortunately, miners who are keen to use low-cost energy from China’s abundant hydroelectric power plants and coal-fired power plants are not devolving power so quickly.This put them in a precarious position and triggered a wave of panic after China Hit the miners earlier this yearThe good news for investors is that the miners have now also moved abroad, reducing the need for any negative regulation of the mining industry in the future.

Read the tea with the supervisor

Retail trading is still a major uncertainty, as large Chinese exchanges such as Huobi and OKEx make up According to statistics, it accounts for about 20% of global sales FTX soundRisePlum display. Binance accounts for more than 50% of global transaction volume and may also have a large percentage of Chinese users.

Although users cannot directly purchase cryptocurrencies with fiat currencies on these platforms, P2P transactions still allow savvy users to easily purchase on platforms such as Binance, using Chinese bank accounts and commercial payment applications to conduct between RMB and stablecoins trade.

So far, although bank accounts are occasionally frozen for trading in the P2P market, the government has not succeeded in slowing down this transaction volume. The sheer volume of digital transactions makes this difficult to monitor, but the government may not be interested in eliminating these channels altogether. It may be possible to completely shut down exchanges and retail investors, but it may freeze China and take the lead in the competition-this is what China is unwilling to do.

Wang believes that a large number of transactions from China will continue to adapt, telling the magazine: “We think they may follow the global trend for stricter compliance, and as we have seen, they have considered limiting leverage and reducing the range of products available to new users.” Wang was referring to what happened earlier this year , At that time exchanges like Huobi restricted users Get futures, A popular but high-risk product, usually more akin to gambling than investment.

Jack Ma still doesn’t quite believe in the short-term future:

“China’s securities and banking regulators have not yet issued new regulations on cryptocurrency trading. This uncertainty may mean that cryptocurrency prices are facing real long-term downward pressure.”

Jack Ma is not alone in worrying about what will happen next. Many Chinese communities, Including early entrepreneur Bobby Lee, Expressed similar concerns, especially after seeing the regulators aim This summer, many companies and individuals in China’s private technology industry participated in it.

If more actions are taken against retail investors, many Chinese users may worry about their future cash-out capabilities, which will cause more panic in the market. The question then becomes whether scandals, scams, and social unrest triggered by speculative investment will force the government to take action. For cryptocurrency holders, the best option is to increase the focus on sustainable development of technology. The soaring prices of meme tokens such as Dogecoin and Shiba Inu may be attractive to short-term traders, but they increase the possibility that the government will put pressure on retail users and the exchanges that serve them.

a Chinese proverb To draw wisdom from it is Kill the chicken and scare the monkey.

In this story, a man slaughtered a chicken and taught him a lesson about that precious dancing monkey. In contrast, if one company’s approach means that other companies will follow suit, China’s regulators will not hesitate.

The international crypto community should hope that China’s leading projects can manage these new policies safely and continue to build a healthy blockchain ecosystem. Chinese entrepreneurship has been spawning the largest exchanges and large mining companies such as Bitmain and Canaan, not to mention the many leading venture capitalists and investors who have helped shape the industry. The next step of the regulator may be important because we may find out whether the top players are chickens or monkeys.

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