- In 2017 China banned crypto exchanges and initial coin offerings (ICOs) but had not barred individuals from holding cryptocurrencies.
- In response to an economic slowdown, Chinese officials also instituted capital controls restricting investors from investing out of China.
- Cryptocurrencies by nature circumvented these restrictions, so appeared as a threat.
- ICOs being a new unregulated financial channel, and coins being quick and easy to generate, companies were opting to present ICOs with potentially risky digital tokens.
- Also, digital currency markets are perceived as a speculative bubble risk, further resulting in Beijing ordering a ban on Chinese digital currency trading platforms such as BTCC, OKCoin, or Huobi (which handled almost all bitcoin trading in China)
- Bitcoin and crypto are (accurately) perceived as speculative and susceptible to fraud and hacking, prompting the People’s Bank of China to determine that about 90% of Mainland ICOs were too risky, if not outright deceitful.
- As a result, companies were directed to terminate ICO activities immediately and to refund investors.
- The ban on crypto exchanges immediately reduced the value of bitcoin and pushed investors to trade their currencies on alternative peer-to-peer Over-The-Counter (OTC) trading platforms.
- In June 2019, the People’s Bank of China issued a statement saying it would block access to all domestic and foreign cryptocurrency exchanges and Initial Coin Offering websites, aiming to clamp down on all cryptocurrency trading with a ban on foreign exchanges.
- Further stating that virtual currencies “are not supported by real value”, their prices are easily manipulated, and trading contracts are not protected by Chinese law.
- Chinas’ skepticism on the effect of crypto on economic and political control, is answering by developing a digital currency which directly competes with Bitcoin and other foreign cryptocurrencies – creating its own CBDC (central bank digital currency.)
- CBDC is an electronic record or digital token of a country’s official currency, issued and regulated by the nation’s monetary authority or central bank, removing privacy, and defeating the revolutionary aspects of decentralized transactions.
- Read more on CBDCs here
Video discussing the current state of Chinas economy and crypto.