Did China Really Leave The Crypto Markets?

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On September 24, 2021, the global crypto community received terrible news. The source of the news was China's central bank. At the time, the central bank effectively banned all activities associated with cryptocurrencies in the country

The ban on cryptocurrency-related services would affect mining, selling, and promoting digital assets. Additionally, all crypto trading platforms in the country had to cease operations. 

The total ban on cryptocurrencies-related services proved to be the culmination of previous sanctions against the crypto industry in the country. Previously, China’s central bank had prohibited commercial banks and other payment platforms from facilitating crypto transactions.

Also, there had been a previous ban on all crypto-mining activities within China. Based on these events, an innocent bystander will conclude that China is pulling out of the crypto markets.

Yet recent events coming out of China and its closest economic partner, Hong Kong, provide an opposite conclusion. Before considering these events, let us look closely at the likely reasons behind China’s repeated crackdown on cryptocurrencies and the coin markets.

Chinese Crackdown On Cryptocurrencies

It is no longer news that China’s government has repeatedly sought to extinguish the crypto markets through its central bank. A reason for its constant drive to extinguish the crypto services can be attributed to the system of government operated in the country.

China functions as a communist one-party state. China's government strictly regulates all economic activities due to its system of governance. As a new and unregulated innovation, the rise of blockchain technology, cryptocurrencies, and decentralized finance posed a significant problem for the Chinese authorities.

A decentralized financial system was too risky to allow it to grow without restrictions in a communist one-party nation like China. However, China’s system of government was not the only hindrance behind the growth of crypto-related services in the country. 

Another major problem for the crypto market was fraudulent activities common in the crypto space. For example, there were many ICO scams during the early days of cryptocurrencies in China.

Initial coin offerings are a popular way to raise funds for new projects. There were, however, repeated attempts by bad actors to undermine the process. As a result, numerous investors lost their funds. To protect its citizens, China prohibited the use of ICOs in 2017. 

Many other crypto hacks and scams outside China over the past few years have done little to assuage the fears of Chinese authorities. In a way, these issues justify China’s decision to ban crypto-related activities in its territory.

Chinese authorities also expressed concern over the high energy consumption of the Bitcoin proof of work consensus model. Chinese regulators banned all crypto-mining activities in the country to reduce its carbon footprint. 

A Glimmer Of Hope

Despite heavy restrictions on crypto-related services in the country, there are no laws against owning digital assets in China. Yes, you read that correctly. Individual investors and traders can own crypto assets like Bitcoin and Ethereum without fear of arrest. 

This reality offered hope to crypto enthusiasts and traders in China. It indicated that China was still part of the global crypto market despite the sanctions against services associated with digital assets. Subsequent events reinforce this belief.

Survival Of Bitcoin Mining In China

Despite the ban on crypto mining, the activity has survived and flourished. According to data from the Cambridge Centre for Alternative Finance, mining activities in China dropped to 0% between July and August 2021.

However, there was a significant increase in mining activities from September 2021 down to this day. Data shows that during September 2021, that mining activity in China increased by 22.29%.

Although this figure dropped to 20% from October 2021 to January 2022, China still ranks second in Bitcoin mining globally. China’s Bitcoin mining network still sits second behind the U.S., with Kazakhstan coming in third.

China's resurgence as a top contributor to Bitcoin’s mining network occurred while the ban against crypto mining was still in place. Thus, the activities of these miners were not entirely legal. 

In their defense, the ban on mining in China was largely ineffective. Aside from that, there were no enforcement measures after the ban began. 

Chinese authorities changed their policy dramatically in September 2022, lifting their previous ban against crypto mining. The move was surprising to many, given existing sanctions against crypto-related services. However, it shows that China is integral to the crypto industry. 

Hong Kong And Cryptocurrencies

Hong Kong's recent interest in cryptocurrencies also provides clear evidence that Chinese authorities are keenly interested in the crypto markets. Often seen as an international financial hub and tourist destination, Hong Kong has a special relationship with China.

Hong Kong is a Special Administrative Region (SAR) functioning under the administration of the Chinese government. Despite holding a complex relationship, Hong Kong and China have similar economic goals.

Thus, Hong Kong's recent move to legalize crypto trading will serve as a testing ground for the complete integration of the crypto markets in China. Arthur Hayes, a former executive at BitMEX, also shares this view.

In an October 26 blog titled “Comeback,” Arthur notes that the recent announcement by Hong Kong’s authorities regarding crypto trading points towards China finding its way back to the coin market. 

Hayes bases his belief on the shared economic ideology of Hong Kong and China. In his words, Hayes restates what has become common knowledge:

Hong Kong acts as “the proxy through which China interacts with the world.”

Commencing crypto trading in Hong Kong will allow Chinese authorities to determine the best way to integrate with the crypto markets. Such a move will have a considerable impact on the global crypto markets. 

The present state of the Chinese Crypto Market

Despite facing significant sanctions, the Chinese crypto markets continue to grow exponentially. The number of transactions in Mainland China from June 2021 to July 2022 exceeded US$220 billion.

Currently, Mainland China tops East Asia’s cryptocurrency market. Additionally, its special administrative regions, Hong Kong and Macau are ranked as 4 and 5 on East Asia’s cryptocurrency market.

These rankings are available despite the current ban against crypto trading in the country. All of these indicate that China is still a big part of the global crypto markets. China never left.

Final Thoughts

Despite operating a communist one-party state, it is essential to note that China is still the second-largest economy in the world. As a result, financial regulators in the country are well aware of the financial opportunities available in the crypto markets. 

Due to this and other factors, we might expect China’s full integration with the crypto markets over the coming years. Hong Kong’s move to regulate crypto trading might be a vital first step towards accomplishing that goal. Until it comes to fruition, we expect to see more growth in the crypto markets in China despite current restrictions. 

Written by
Trust Akpobome

On September 24, 2021, the global crypto community received terrible news. The source of the news was China's central bank. At the time, the central bank effectively banned all activities associated with cryptocurrencies in the country

The ban on cryptocurrency-related services would affect mining, selling, and promoting digital assets. Additionally, all crypto trading platforms in the country had to cease operations. 

The total ban on cryptocurrencies-related services proved to be the culmination of previous sanctions against the crypto industry in the country. Previously, China’s central bank had prohibited commercial banks and other payment platforms from facilitating crypto transactions.

Also, there had been a previous ban on all crypto-mining activities within China. Based on these events, an innocent bystander will conclude that China is pulling out of the crypto markets.

Yet recent events coming out of China and its closest economic partner, Hong Kong, provide an opposite conclusion. Before considering these events, let us look closely at the likely reasons behind China’s repeated crackdown on cryptocurrencies and the coin markets.

Chinese Crackdown On Cryptocurrencies

It is no longer news that China’s government has repeatedly sought to extinguish the crypto markets through its central bank. A reason for its constant drive to extinguish the crypto services can be attributed to the system of government operated in the country.

China functions as a communist one-party state. China's government strictly regulates all economic activities due to its system of governance. As a new and unregulated innovation, the rise of blockchain technology, cryptocurrencies, and decentralized finance posed a significant problem for the Chinese authorities.

A decentralized financial system was too risky to allow it to grow without restrictions in a communist one-party nation like China. However, China’s system of government was not the only hindrance behind the growth of crypto-related services in the country. 

Another major problem for the crypto market was fraudulent activities common in the crypto space. For example, there were many ICO scams during the early days of cryptocurrencies in China.

Initial coin offerings are a popular way to raise funds for new projects. There were, however, repeated attempts by bad actors to undermine the process. As a result, numerous investors lost their funds. To protect its citizens, China prohibited the use of ICOs in 2017. 

Many other crypto hacks and scams outside China over the past few years have done little to assuage the fears of Chinese authorities. In a way, these issues justify China’s decision to ban crypto-related activities in its territory.

Chinese authorities also expressed concern over the high energy consumption of the Bitcoin proof of work consensus model. Chinese regulators banned all crypto-mining activities in the country to reduce its carbon footprint. 

A Glimmer Of Hope

Despite heavy restrictions on crypto-related services in the country, there are no laws against owning digital assets in China. Yes, you read that correctly. Individual investors and traders can own crypto assets like Bitcoin and Ethereum without fear of arrest. 

This reality offered hope to crypto enthusiasts and traders in China. It indicated that China was still part of the global crypto market despite the sanctions against services associated with digital assets. Subsequent events reinforce this belief.

Survival Of Bitcoin Mining In China

Despite the ban on crypto mining, the activity has survived and flourished. According to data from the Cambridge Centre for Alternative Finance, mining activities in China dropped to 0% between July and August 2021.

However, there was a significant increase in mining activities from September 2021 down to this day. Data shows that during September 2021, that mining activity in China increased by 22.29%.

Although this figure dropped to 20% from October 2021 to January 2022, China still ranks second in Bitcoin mining globally. China’s Bitcoin mining network still sits second behind the U.S., with Kazakhstan coming in third.

China's resurgence as a top contributor to Bitcoin’s mining network occurred while the ban against crypto mining was still in place. Thus, the activities of these miners were not entirely legal. 

In their defense, the ban on mining in China was largely ineffective. Aside from that, there were no enforcement measures after the ban began. 

Chinese authorities changed their policy dramatically in September 2022, lifting their previous ban against crypto mining. The move was surprising to many, given existing sanctions against crypto-related services. However, it shows that China is integral to the crypto industry. 

Hong Kong And Cryptocurrencies

Hong Kong's recent interest in cryptocurrencies also provides clear evidence that Chinese authorities are keenly interested in the crypto markets. Often seen as an international financial hub and tourist destination, Hong Kong has a special relationship with China.

Hong Kong is a Special Administrative Region (SAR) functioning under the administration of the Chinese government. Despite holding a complex relationship, Hong Kong and China have similar economic goals.

Thus, Hong Kong's recent move to legalize crypto trading will serve as a testing ground for the complete integration of the crypto markets in China. Arthur Hayes, a former executive at BitMEX, also shares this view.

In an October 26 blog titled “Comeback,” Arthur notes that the recent announcement by Hong Kong’s authorities regarding crypto trading points towards China finding its way back to the coin market. 

Hayes bases his belief on the shared economic ideology of Hong Kong and China. In his words, Hayes restates what has become common knowledge:

Hong Kong acts as “the proxy through which China interacts with the world.”

Commencing crypto trading in Hong Kong will allow Chinese authorities to determine the best way to integrate with the crypto markets. Such a move will have a considerable impact on the global crypto markets. 

The present state of the Chinese Crypto Market

Despite facing significant sanctions, the Chinese crypto markets continue to grow exponentially. The number of transactions in Mainland China from June 2021 to July 2022 exceeded US$220 billion.

Currently, Mainland China tops East Asia’s cryptocurrency market. Additionally, its special administrative regions, Hong Kong and Macau are ranked as 4 and 5 on East Asia’s cryptocurrency market.

These rankings are available despite the current ban against crypto trading in the country. All of these indicate that China is still a big part of the global crypto markets. China never left.

Final Thoughts

Despite operating a communist one-party state, it is essential to note that China is still the second-largest economy in the world. As a result, financial regulators in the country are well aware of the financial opportunities available in the crypto markets. 

Due to this and other factors, we might expect China’s full integration with the crypto markets over the coming years. Hong Kong’s move to regulate crypto trading might be a vital first step towards accomplishing that goal. Until it comes to fruition, we expect to see more growth in the crypto markets in China despite current restrictions. 

Written by
Trust Akpobome