China Crypto Crackdown: Calendar Offers Clue as to ‘Why Now?’

China just lately cracked down on bitcoin, once more. The query is: Why now?

The calendar might present a clue. Thursday is July 1, the 100th anniversary of the Chinese Communist Party. It’s not less than believable that Chinese language authorities would ship a powerful warning to the crypto trade within the weeks main as much as this massive day.

This principle is already circulating round Chinese language crypto circles, not less than privately. However these accustomed to China will acknowledge the tense solemnity that leads as much as these sorts of occasions, which can be accompanied by crackdowns on exercise that the federal government views as a menace to shehui wending, or social stability. Cryptocurrency seems to suit into that class. 

“The larger context is that China has had sufficient,” mentioned Bobby Lee, former CEO of early bitcoin change BTCC and now CEO of pockets service Ballet and writer of “The Promise of Bitcoin.” “China has seen loads of fraud, unlawful fundraising and other people dropping cash on buying and selling.”

“When individuals lose their cash in a market crash, it causes social unhappiness, and that may trigger political unrest,” Lee mentioned. 

In keeping with Lee, the crackdown’s timing shouldn’t be unintended. “July 1 is the 100-year anniversary of the Chinese language Communist Get together. It’s a pleasure factor. They need to clear up the mess earlier than July 1.” Lee likened it to having to tidy up your bed room earlier than your father’s party.

The anniversary is a tightly choreographed occasion wherein disruptions are clearly not welcome. The current crackdown contains shutting down mining and instructing banks to avoid crypto. China’s strikes despatched bitcoin’s worth plummeting, not less than quickly. The final time China actually spooked the worldwide crypto market was in 2017, when it shut down exchanges and banned preliminary coin choices. It’s price noting that China ordered exchanges to close down in September of that yr, shortly earlier than Nationwide Day on Oct. 1, which marks the founding of the Individuals’s Republic of China.

This phenomenon shouldn’t be restricted to crypto. In 2018, The Wall Avenue Journal reported on authorities intervening to maintain the inventory market regular within the lead-up to the Nationwide Individuals’s Congress. One investor told the WSJ his dealer informed him the Shenzhen inventory change had deemed his transactions too “disruptive” throughout a politically delicate time. 

“The phrase from the change was that my trades had been too massive and too frequent, and I used to be informed it was all due to the Nationwide Individuals’s Congress,” the investor mentioned. 

The crypto market is notoriously unstable and weak to scams, and Chinese language retail buyers have been burned by new, unstable industries. The 2018 collapse of the peer-to-peer lending market led to large monetary losses, protests and even death. 

“Crypto has grown comparatively quickly in China, it might develop much more,” mentioned Zennon Kapron, founding father of Kapronasia, a fintech analysis and consulting agency. One of many classes authorities realized from the P2P lending disaster is that “they didn’t cease it quickly sufficient,” Kapron mentioned. “Many retail buyers misplaced a major amount of cash.” 

There’s another excuse why the federal government could be so involved in regards to the plight of retail buyers. In nations just like the U.S., usually talking, particular person buyers wouldn’t essentially fault the federal government for his or her losses. This isn’t the case in China, not less than based on Lee. 

“When individuals in China lose cash, they blame the federal government. The federal government serves the position of a protector of society. Authorities’s position is to ensure the whole lot is orderly and secure. Something that goes unsuitable, it’s the federal government’s position to repair it.”

Which brings us again to social stability. The very last thing the Chinese language authorities wants is for a flash-in-the-pan coin to implode, main offended buyers to take to the streets. Mass protests of any variety, whether or not in opposition to the federal government, a crypto mission or an change, signify simply the sort of unrest that Beijing needs to keep away from, particularly earlier than a high-profile political occasion.

However whereas July 1 might assist clarify the timing of the crypto crackdown, it’s not the one motive for it. Key political dates might largely function catalysts for actions that the federal government is already considering.

Yifan He, CEO of Pink Date Tech and govt director of BSN, China’s government-supported blockchain mission, believes capital controls are a key issue within the crackdown. China solely permits people to maneuver a most of $50,000 in another country annually, and cryptocurrency might assist individuals circumvent that restriction. 

He mentioned one motive China can print cash with out creating main inflation is as a result of it has international reserves of over $3 trillion. “If lots of people are shifting cash exterior China, that truly has an impression on the reserve.”

One other key timing issue often is the bull market of 2021, throughout which bitcoin repeatedly soared to new highs. “An increasing number of Chinese language individuals get entangled in crypto buying and selling, so it turns into a menace to the federal government,” He mentioned. The principle motive for the crackdown, He mentioned, is “the speedy development of the whole customers of cryptocurrency in China up to now 6 months.”

He mentioned that whereas China’s stance on crypto has not likely modified, the actions are stronger this time. “All of the mining will likely be gone. No exception. So principally the whole crypto mining trade is gone from China.”

So what occurs after July 1? Maybe the ambiance will develop into extra relaxed, not less than till the following main vacation. However some would argue that over the long run it doesn’t actually matter. China’s 2017 crypto crackdown sparked a short worth crash, but it surely was adopted by a bull run. The market has solely grown exponentially since then. 

“If China shut down all of its mining, bitcoin will proceed,” Lee mentioned. “That can show bitcoin is resilient. The extra stress checks we undergo, the extra belief individuals have within the system.”