There is still a lot of confusion regarding the current cryptocurrency situation in China. With so much conflicting information, it can be challenging to distinguish truth from fiction. As things stand, Bitcoin is not illegal by any means, although the government may crack down on certain activities regarding digital currencies.
China Takes Confusing Actions
The past few weeks have proven dramatic for nearly all cryptocurrency markets. Prices were slashed by as much as 60% for some digital assets. Even today, there is little sign of a market recovery, creating a somewhat uneasy situation for everyone. Moreover, there is a lot of confusion over what is going on exactly and the long-term consequences for all parties involved.
Per a new report by Galaxy Digital Research, it is evident the situation may not be as dire as people think. Although the FSDC had a meeting a few days ago with the Chinese Vice Premier, there is no ban on Bitcoin to speak of. Instead, a new policy will go in place that restricts the mining and trading of Bitcoin to a certain degree. One section mentions how these activities can pose “financial risks which need to be prevented”.
Although there is an explicit mention of curbing the use of Bitcoin, there is no accurate indication as to how they will implement it exactly. The FSDC wants to crack down hard on illegal securities activities and illegal financial activities. Which role Bitcoin – and potentially other crypto assets- play in this equation remains to be determined.
Chinese Bitcoin miners take these new guidelines very seriously and may either shut down operations or move altogether. As this news coincides with the annual migration to wetter regions and cheaper hydroelectric energy, there was a sharp decrease in Bitcoin mining hashpower. Not entirely abnormal, although the associated market panic was entirely unwarranted.
Not The First Chinese Rodeo
Those who are new to the cryptocurrency may think it is the first time the Chinese government attempts to intervene. That is not the case, as similar “attempts” date back to 2013 and 2017. In the first iteration, financial institutions in China were prohibited from working with cryptocurrencies and service providers. In 2017, ICOs and exchanges were restricted, forcing many companies to seek shelter elsewhere.
Even in 2020, the government decided to go after Huobi and OKEx officials, resulting in a temporary shut down of OTC desks. Eventually, all of these events result in a return to how things were before the news. This time will be no different, as it is not in China’s best interest to prevent Bitcoin usage altogether.
It may take a few more days, if not weeks until the cryptocurrency markets fully recover. Prices remain subdued for Bitcoin, Ethereum, and all other assets. Unusual and unnecessary, as China is of far less importance than people may think. Additionally, no government can stop cryptocurrencies in their tracks in any capacity. China can keep trying to dissuade people from using cryptocurrencies, but that will only backfire in the long run.