China Latest Crypto Ban Demonstrates That Government Regulation May Not Be As Effective As We Believe
China's latest crypto ban demonstrates that government regulation may not be as effective as we believe
China has once again declared that all crypto-related activities are illegal, a trend that has continued for some time. The Chinese Central Bank also announced that any cryptocurrency trading, order matching, token issuance, and derivatives on cryptocurrencies are prohibited, including services provided by foreign entities that are made available in mainland China by the Chinese Central Bank itself.
The People's Bank of China (PBOC) stated that the ban was necessary in order to "maintain national security and social stability."
Due to the announcement, which occurred on Friday, the market value of the world's cryptocurrencies dropped to approximately $1.8 trillion, down from $1.988 trillion. According to CoinMarketCap, the cryptocurrency experienced a 9 percent decline just three hours after China's announcement.
Attempts by Chinese authorities to impose cryptocurrency restrictions have occurred three times so far this year.
It issued a warning to buyers in May, stating that if citizens continued to engage in cryptocurrency transactions, they would be subject to no protection from the government. A month later, banks and payment platforms were ordered to cease processing cryptocurrency transactions, and coin mining was also prohibited.
This is perhaps the most serious ban because it encompasses completely all aspects of cryptocurrency transactions, leaving no grey areas or loopholes for citizens to take advantage of. Most likely, this is being done to ensure that the yuan, the country's official currency, is the focal point of attention.
After receiving notice of this announcement, Huobi, a cryptocurrency exchange platform, immediately stopped allowing new users to register using a mainland China phone number and stated in a statement that it would "gradually retire existing mainland China user accounts" by December 31.
China and cryptocurrency have a tumultuous history together
Apart from the fact that cryptocurrencies are considered illegal by the Chinese government, they are also a drain on their energy resources due to the large amount of mining that takes place, which is in conflict with their environmental objectives. This sour relationship has been going on for nearly a decade now.
Back in 2013, Chinese banks were barred from processing bitcoin transactions because the cryptocurrency is not recognized as legal tender in the country, and is instead referred to as a virtual good. In response, the market reacted negatively, with the price of bitcoin plummeting by more than 20%, to just below $1,000.
After a year, the government launched an investigation into an alleged market manipulation and money laundering scheme involving bitcoin. Initial coin offerings (ICOs) and cryptocurrency exchanges were also prohibited. However, citizens were able to circumvent this by engaging in peer-to-peer trading. Because of this, Bitcoin's price dropped by $200, from $4,584 per coin just before the announcement to around $4,350 per coin shortly afterwards.
They considered prohibiting cryptocurrency mining in 2019, but ultimately decided against it. This latest ban on cryptocurrencies can be considered to be the most serious action taken by the government in relation to cryptocurrencies to date.
The price of Bitcoin fell 3.6 percent to $42,200 on the day of the announcement, down from approximately $44,000 the day before.
Nothing appears to have changed
Despite the fact that the Chinese government has previously imposed some form of cryptocurrency ban, bitcoin has survived and thrived in the country for one simple reason: people want it. Nigeria, on the other hand, has been unable to enforce its bitcoin ban due to the same reason.
When it comes to cryptocurrency and other virtual token transactions, Nigeria is one of the world's most active countries in this field. According to a survey conducted by Statista, Nigerians have an adoption rate of approximately 32 percent.
Following the lead of its Chinese counterpart, the Nigerian government initially advised banks not to engage in cryptocurrency-related activities before outright prohibiting them. In general, we are still getting our bearings on the volatility of the cryptocurrency market.
However, as we have seen in the past, the market has been able to recover from setbacks. According to Coinbase, the price of bitcoin has risen to $43,750 once again.
Governments all over the world are scrambling to keep up with the developments in the $2 trillion cryptocurrency industry, which is rapidly expanding and has disrupted traditional banking and finance on a consistent basis.
