Shenzhen, China – Actions taken by Chinese authorities to close regulatory loopholes around cryptocurrency trading and mining late last week essentially banned all such activity in China overnight. And many crypto holders are still scrambling to deal with the fallout.
For many companies that have made big bets on crypto in recent years – especially companies in the tech industry – options may be limited for cashing out their holdings.
The People’s Bank of China directive declared all virtual currency-related business activities illegal, cutting the country off from overseas crypto exchanges. This could potentially lead to sanctions for investors who deal in foreign trade.
âWhat’s a little fuzzy is the deadline for the literal deadline,â said Winston Ma, adjunct professor at New York University and an expert in global financial regulation.
“What is that magic date for more transactions, more cryptocurrency?” He asked Al Jazeera during a video call.
Ma said technically last Friday – the day the notice was issued – could be considered the effective date, but even that was not specified.
âEspecially listed companies, they have a lot more compliance obligations than retail investors, so you can imagine they have to think about the right way to comply with this regulation,â Ma said.
Almost a week later, this lack of clarity persists.
“This is a space that I continue to monitor because we don’t really know what’s going to happen,” Kevin Desouza, professor of business, technology and strategy at Queensland University of Technology, told Al Jazeera. in an email response to questions. . “There are too many variables in play right now to say for sure what the options are.”
This uncertainty has led to constant calls, emails and messages from confused customers to people like El Lee, COO of Singapore-based crypto asset custody firm Digital Treasures Management.
âHonestly, no one saw this coming,â Lee told Al Jazeera on a video call regarding the speed of the actions, not necessarily that it was unknown that regulations would eventually tighten. “I think the key element this time is that it bans anything related to virtual currency.”
For anyone trying to change the crypto to the Chinese yuan, it would be “relatively impossible,” Lee said, under the new regulations. Other options may exist to switch from a cryptocurrency like Bitcoin to a stablecoin on a decentralized exchange and later exchange it for fiat currency outside of China, he said.
Lee also noted that there are still questions about how the regulations will deal with past issues that have arisen when intermediaries have engaged in transactions and potentially engaged in fraudulent activity – and whether those activities could be punished. retroactively.
“The question about this is whether the law applies in reverse, because the new ruling came after these activities,” Lee said.
“Does this apply to these speculative cases or is it just prospective?” There is no way to tell if it is retrospective.
Down with Bitcoin
Since 2017, crypto traders and miners in China – wary of the tightening of the regulatory vise – have relocated overseas.
But this year, the nails for the coffin of China’s crypto industry have multiplied rapidly.
Bitcoin miners have landed firmly in the sights of authorities from this spring. Miners run banks of powerful computers in a race to verify transactions in exchange for new Bitcoins. Their “platforms” consume large amounts of electricity.
From May to June, crypto-mining bans spread from Inner Mongolia to Yunnan and Sichuan in what authorities have called an effort to meet energy efficiency targets, although most of the energy used has not been connected to the network or an excess supply has not been sold to the grid.
Not surprisingly, sales of cryptocurrency mining equipment have taken a hit. And this week, the Alibaba Group announced a ban on all sales of this equipment as well as all other hardware and software used in mining and trading on its global wholesale platform from October 8. .
The imminent death of the industry in China is also on display at Shenzhen’s famous Huaqiangbei Market, where virtually any electronic equipment or component can be found within a few blocks.
A year ago, two floors of SEG Plaza were mostly populated by vendors of crypto-mining equipment and software. Now the few that remain are mostly scattered around the fourth floor, cluttered with stalls with printers, walkie-talkies, second-hand computers, and other gadgets.
âThe regulations have definitely affected our business,â said one crypto mining machine seller who declined to give his name. “There isn’t much we can do about it, and [we] can’t sell here now, but we still sell overseas.
The seller estimated that only around 40% of the crypto machine shops are still operating in the building and said most of its exports are currently to Russia.
Lee said the megatrend he’s seen in recent months is that crypto-related companies have left China or already are. Miners are looking for new locations where they are welcome, and crypto-related business ventures are moving to places with regulatory regimes favorable to crypto.
For miners, that means places like Kazakhstan, Uzbekistan, and even Texas in the United States, and for crypto trading companies, great strides have been made in Southeast Asia.
âSingapore is one of the hotbeds for this right now,â Lee said of these transitions, which will likely accelerate as restrictions related to the coronavirus pandemic loosen.
Towards the blockchain
Questions remain about the impact of the government’s crypto crackdown on innovation in areas such as blockchain, as well as the flexibility of financial flows for the Chinese tech industry, which is increasingly constrained by authorities. from Beijing.
In recent months, Beijing has become increasingly determined to establish the Chinese Yuan digital currency as the main dog, with all other cryptocurrencies seen as problematic due to domestic concerns over cross-border capital flows and escape. potential tax.
âIt has no impact on innovation at a global level,â Desouza said. âHowever, these actions will set Chinese companies back. But, the central government is betting on its centrally controlled digital currency strategy to be far superior to the current bottom-up emerging approach. The simple issues of scale to which the digital currency will be deployed give them an advantage. “
China’s movements can in part be read in relation to the bifurcation between the United States and China in the evolutionary struggle for technological supremacy, according to Ma, as well as some sort of bifurcation within China itself. same.
While now eschewing cryptocurrencies due to potential financial stability risks, China continues to bank on the massive promotion of blockchain-related technologies that are essential to the future digital economy.
Ma is referring to a speech given by Chinese President Xi Jinping on the same day the cryptocurrency and mining advisory was published. Xi’s speech emphasized scientific and technological innovation.
âTo me, this means that the government is very focused on real technological innovation rather than innovation focused on financial trade,â he said. âSo if in the future you see the US side focusing on the business side of crypto and the Chinese side on the tech side of blockchain, that’s a very interesting fork.â