China has banned Bitcoin more times than I can remember. On Friday, China declared that all crypto transactions are illegal driving a sell-off of Bitcoin, Ethereum, and other cryptocurrencies. The market value of the world’s cryptocurrencies tanked to a low as $1.8 trillion, falling roughly 9% and losing $188 billion in value within just three hours of China’s announcement, according to CoinMarketCap.
Everything to do with crypto in China is illegal. In May, the Chinese state warned buyers they would have no protection for continuing to trade bitcoin and other currencies online, as government officials vowed to increase pressure on the industry. In June, it told banks and payment platforms to stop facilitating transactions and issued bans on “mining” the currencies – the trade of using powerful computers to make new coins.
Now the crypto ban in China includes enhancing enforcement against illegal mining, as well as prohibiting all financial transactions involving crypto. The Chinese central bank also announced that any trading, order matching, token issuance, and derivatives on cryptocurrencies are illegal, including services offered by overseas entities made available within mainland China.
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In a statement, the People’s Bank of China (PBOC) said the rules are necessary to “maintain national security and social stability.” What a crock…
China has taken steps to curb the rise of cryptocurrency since at least 2013, but with crypto markets booming in 2021 and the gradual rollout of China’s state-backed digital yuan, the government is getting more serious about cracking down on crypto.
Winter 2013: Banks are banned from bitcoin
China bans banks from handling bitcoin transactions, calling it a “virtual good” and not legal tender. BTC China, the country’s largest bitcoin exchange, stops taking deposits in yuan under pressure from payment processors and the government. The price of bitcoin dropped by more than 20% to below $1,000.
Spring 2014: Penalties for banks
The Chinese government announces that it would penalize banks that took part in Bitcoin transactions. The price of bitcoin dropped from $585 to around $513.
Fall 2017: ICOs and exchanges are banned
China bans initial coin offerings (ICOs). Crypto exchanges are banned in China. Citizens largely get around the ban by using offshore exchanges and peer-to-peer trading. Bitcoin’s price fell by $200, from $4,584 shortly before the announcement to around $4,350 per coin.
Spring 2021: Mining crackdown
China cracks down on crypto mining, as mining activities start to threaten the country’s environmental goals. The government bans financial institutions and payment companies from providing crypto-related services. The price of bitcoin fell by 8.5%.
While the Chinese government has cracked down on bitcoin several times, this year alone it’s been twice, each time this happens, the markets react with a price drop, but each time the effect is smaller and more short-lived. If China continues on this course, crypto will shift to countries with more stable regulatory environments, which means more predictable liquidity and healthier, more robust trading across the globe.
Banning Facebook or Google and replacing them with localized equivalents may be simple. But it’s far more complicated to ban bitcoin. Despite having imposed all kinds of bans, bitcoin continues to exist in China for one simple reason: people want it. For the same reason, Nigeria hasn’t been successful with its bitcoin ban either.
China is so hostile to economic freedom, banning its people from participating in what is arguably the most exciting innovation in decades, but the truth is that China needs bitcoin just as much as the US needed it in 2008.
Sooner or later, the next crisis will hit and Evergrande could be the one, doing as much harm as Lehmann Brothers did, leading to the last global financial crisis in 2008. While we never learned from Lehman Brothers and the financial system remains very fragile, a great thing that came out of the crisis was bitcoin.
The Evergrande crisis may have affected the price of bitcoin and depending on how China finally handles the situation it may affect it even more.
With this financial crisis, another great thing will also begin. We will see bitcoin hit all-time highs, but more importantly, we will transition to a crypto economy in more countries, beyond El Salvador. The ripple effects of the Evergrande crisis will create financial instability around the globe and push the use of cryptocurrency in daily life. Every country may not be like El Salvador and simply flip the switch, but this is the course we are on.
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