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Shenzhen, China– Late last week, actions taken by Chinese authorities to close regulatory loopholes surrounding cryptocurrency trading and mining basically banned all such activities in China overnight. Many cryptocurrency holders are still scrambling to deal with the consequences.
For many companies that have made big bets on cryptocurrencies in the past few years—especially companies in the technology industry—the options for cashing out their holdings may be limited.
The People’s Bank of China’s directive declared that all business activities related to virtual currencies were illegal, cutting off the country’s ties with overseas cryptocurrency exchanges. This may result in penalties for investors dealing with overseas exchanges.
Winston Ma, an adjunct professor at New York University and an expert on global financial regulation, said: “It’s a bit unclear when the exact deadline is.”
“When is the magical date for no more transactions and no more cryptocurrency?” He asked Al Jazeera during a video call.
Ma Yun said that, technically speaking, last Friday-the day the notice was issued-could be regarded as the effective date, but even then it did not specify.
“Especially listed companies, their compliance obligations are much more than retail investors, so you can imagine that they must consider the correct way to comply with this regulation,” Ma said.
Nearly a week later, this ambiguity still exists.
Kevin Desouza, professor of business, technology and strategy at Queensland University of Technology, told Al Jazeera when answering questions via email: “This is a space that I continue to focus on because we really don’t know what will happen. “. “There are too many variables at work now, it is impossible to determine which options are available.”
This uncertainty has led to confused customers who continue to call, email, and send messages to people like El Lee, the chief operating officer of Digital Treasures Management, a Singapore-based crypto asset custody company.
The headquarters of the People’s Bank of China issued a directive last week effectively banning cryptocurrency trading and mining in China. [File: Jason Lee/Reuters]“Honestly, no one has seen this,” Li told Al Jazeera in a video call. Regarding the speed of action, it is not necessarily that unknown regulations will eventually be tightened. “I think the key point this time is that it prohibits any dealings with virtual currencies.”
Lee stated that under the new regulations, this is “relatively impossible” for anyone trying to convert cryptocurrency into RMB. He said that there may be other options when decentralized exchanges convert cryptocurrencies such as Bitcoin into stable currencies and then exchange them for legal tender outside of China.
Lee also pointed out that there are still questions about how the regulations will solve the problems that occurred in the past when intermediaries engaged in transactions and possible fraudulent activities, and whether these activities can be retroactively punished.
“The question is whether the law applies backwards, because the new ruling is made after these activities,” Li said.
“Does it apply to those speculative cases or is it just forward-looking? There is no way to judge whether it is retrospective.”
Down with Bitcoin
Since 2017, Chinese cryptocurrency traders and miners – who are vigilant about tightening regulatory nooses – have been moving abroad.
But this year, the nails in the coffin of China’s encryption industry have multiplied.
Starting this spring, Bitcoin miners have firmly grasped the attention of the authorities. Miners run powerful computer banks to verify transactions in exchange for new bitcoins. Their “drilling rigs” consume a lot of electricity.
From May to June, the encryption mining ban spread from Inner Mongolia to Yunnan and then to Sichuan. The authorities said this was to achieve energy efficiency goals, although most of the energy was either not connected to the grid or the excess supply was not sold to the grid.
Not surprisingly, the sales of cryptocurrency mining equipment have been hit. This week, Alibaba Group announced that it would ban the sale of such equipment and any other hardware and software used for mining and trading on its global wholesale platform from October 8.
The famous Huaqiangbei market in Shenzhen also showcases the pending death of the Chinese industry, where almost any electronic device or component can be found within a few blocks.
A year ago, the two floors of SEG Plaza were mainly encrypted mining equipment and software suppliers. Now, the remaining ones are mainly scattered on the fourth floor, crowded with stalls for printers, walkie-talkies, second-hand computers and other gadgets.
“These regulations have definitely hit our business,” said a salesperson of crypto mining machines who declined to provide his name. “We can’t do anything about it, and [we] Now it can’t be sold here, but we are still selling overseas. “
Bitcoin miners run powerful computer banks to verify transactions in exchange for new Bitcoins, and their “drilling rigs” consume a lot of electricity [File: Hazir Reka/Reuters]The salesperson estimated that only about 40% of encrypted machine shops are still operating in the building, and said that most of his export products are currently going to Russia.
Lee said that the general trend he has seen in recent months is that crypto-related companies have moved out of China or have withdrawn. Miners are looking for new locations that welcome them, and crypto-related trading companies are opening stores in places with crypto-friendly regulatory systems.
For miners, this means that places like Kazakhstan, Uzbekistan and even Texas in the United States have already taken major initiatives in Southeast Asia for cryptocurrency trading businesses.
“Singapore is now one of the hotbeds for this,” Lee said of these changes, which may accelerate as restrictions on the coronavirus pandemic relax.
With blockchain
There are still questions about how the government’s crackdown on cryptocurrency will affect innovation in areas such as blockchain and the flexibility of capital flows in China’s technology industry, which is increasingly being squeezed by the Beijing authorities.
In recent months, Beijing has increasingly tended to establish China’s digital renminbi currency as the number one player. All other cryptocurrencies are considered problematic due to the country’s concerns about cross-border capital flows and potential tax evasion.
“It will not affect innovation at the global level,” Desouza said. “However, these actions will make Chinese companies retreat. However, the central government is betting that its centrally controlled digital currency strategy is far superior to the current bottom-up emergency approach. The simple scale of deploying digital currency gives them an advantage.”
Ma said that China’s actions can be partly interpreted from the differences between the United States and China in the evolving struggle for technological hegemony and the differences within China.
Although it is now avoiding cryptocurrencies due to potential financial stability risks, China is still going all out in terms of vigorously promoting blockchain-related technologies that are vital to the future digital economy.
Ma referred to a speech by Chinese President Xi Jinping on the same day the cryptocurrency and mining notice was issued. Xi Jinping’s speech emphasized technological innovation.
“To me, this means that the government is very concerned about real technological innovation, not innovation driven by financial transactions,” he said. “So, if you look forward, you will see that the U.S. is focused on cryptocurrency transactions, while the Chinese side is focused on the technical aspects of blockchain. This is a very interesting divergence.”
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