After China’s latest crackdown on cryptocurrency, Bitcoin and Ether saw a decrease in value.
As of Monday, Bitcoin dropped to $31,333, under half its $65,000 value in April 2021. In addition, Ether fell to a five-week low at $1,890.
Alongside the May and June crackdowns were additional trial runs of the developing China cryptocurrency, the digital yuan.
Beijing, the mainland capital, is the latest city to take part in the digital yuan lottery, which will distribute the equivalent of $6.2 million among select participants. However, the digital yuan has yet to have a nationwide debut.
China Bans Cryptocurrency 2021
In China, cryptocurrency traders and exchanges face a new set of regulations.
China barred financial institutions from offering any service related to crypto transactions. It’s not the first time the Chinese government has taken action against the Chinese cryptocurrency exchange — and who knows if it’ll be the last.
Below, we’ll give a rundown of how the state of Chinese cryptocurrency has reached this point, what it means for traders, and how you can still obtain Bitcoin in China despite additional regulations.
In China, cryptocurrency has gone through a ride, taking commercial traders along with it.
This new 2021 crackdown has been the largest move by the Chinese government to ban cryptocurrency since 2017. It prevents China banks and other payment services from providing clients with any crypto-related services, including registrations, clearing and settlement, and trading.
Government representatives have cited the protection of people’s property and stability of the regular economy as the reasons for this latest move. The additional regulations also help rid China of crypto competition as it sets its sights on the nationwide rollout of its own digital currency.
China Crackdown on Cryptocurrency
China banning cryptocurrency is by no means a recent endeavor. In 2017, the government banned domestic exchanges, stomping out a speculative market accounting for about 90% of global Bitcoin trading.
In recent China crypto news, the government has instituted new laws that further the China bitcoin ban. This 2021 update has been the largest move by the Chinese government in terms of China banning cryptocurrency.
The summarized timeline below will tell you the steps that led to the latest laws.
The new law in China bans initial coin offerings and crypto exchanges. It’s the most escalated effort in China’s crypto crackdown since the 2017 ban.
The strict regulations followed a ferocious surge in Bitcoin and other digital currencies. The Chinese Communist Party acted on growing concerns of cryptocurrency and the potential for money laundering, fraud, and trading losses.
China’s Mining Crackdown
Even now, about 65% of global Bitcoin mining takes place in China, in large part due to the low cost of electricity. But how long will miners remain?
In May 2021, China’s cabinet, the State Council, promised to come down hard on mining to mitigate financial risks. The latest regulations show their intentions to follow through on this promise.
On Friday, June 18th, 2021, authorities ordered Bitcoin mining projects to cease in the province of Sichuan, China’s second-largest Bitcoin producer. The following Monday, Bitcoin experienced a two-week low following China’s expanding Bitcoin ban.
Individuals may not feel the impact as hard as commercial miners, who now debate relocating outside the mainland, but no doubt everyone is experiencing some aftershocks.
What is causing them to come down so hard? In 2020, the Chinese government started to roll out its own cryptocurrency — the digital yuan.
Latest on the China Blockchain
Despite China banning bitcoin, the country still seeks a position as the global leader of blockchain technology by 2025.
Plans of incorporating tech into the economy are underway. Government support of the China blockchain industry will come in tax incentives, intellectual property protections, and industrial standards. The government’s praise of blockchain technology is not new, and President Xi has kept its development on the forefront over the last three years.
The digital yuan and its relation to China ban crypto regulations have a lot to do with China’s authoritative position over its money situation.
Part of why the government of China banned Bitcoin was to protect the country’s tightly controlled economy. With cryptocurrency, the government can only view one end of a transaction.
In other words, they can see their fiat currency move elsewhere but cannot see where it moved. And due to the anonymous nature of Bitcoin and cryptocurrencies like it, the Chinese government has no way even to predict where the money will go from there. So essentially, there’s no guarantee that money will re-enter China’s economy.
Authorities feel this threatens the yuan’s sovereignty and fails to protect the people against fraud and money laundering. This perception led to a ban on P2P trading, though traders still get around this by using a VPN.
In China, cryptocurrency also poses competition to the digital yuan.
In October 2020, the Shenzhen government began the first large trial run of the digital yuan. The trial was a lottery that distributed the equivalent of $1.5 million of the digital currency among citizens.
Local Shenzhen merchants, like supermarkets and pharmacies, participated in the Chinese cryptocurrency trials. Even Walmart got in on the action.
Digital Yuan vs. Bitcoin
Like other digital coins, the digital yuan is a piece of code. However, as China continues developing its blockchain technology, the digital currency will eventually replace paper and coin money.
Unlike other digital coins, the China blockchain operates through a centralized network, with the People’s Bank of China controlling it. The digital yuan, while legally considered tender, has yet to see a nationwide rollout.
Smaller trials took place in 2019, accompanied by other regulations against other forms of cryptocurrency.
The year 2019 is when it became clear China supported the underlying blockchain technology but did not support Bitcoin or other anonymous digital currencies.
Additionally, more information revolving around the digital yuan became public. Mu Changchun, the director of China’s central bank, made it clear that the digital yuan will be a digital version of the current currency and won’t allow speculation.
Reports of banning mining and other aspects of crypto speculation began here as well. A few of those reports have started coming to fruition in 2021.
Government Stance on Blockchain and Crypto
President Xi Jinping asked for Chinese developers to prioritize the development of blockchain technology, crypto’s underbelly.
Despite the endorsement of blockchain technology, the government still backed its hardline stance on bitcoin and other cryptocurrencies. State media even issued warnings against speculation in crypto and began blocking offshore exchanges on their internet service.
The China bitcoin ban seemed ineffective, as the China cryptocurrency traders continued activities using VPNs.
November 2019 saw government action against those going against the China ban on Bitcoin. Shenzhen authorities were able to pinpoint 39 exchanges defying the ban and implemented corrective measures against those entities. Additionally, about five additional Chinese exchanges ceased or closed operations altogether.
Chinese Officials Discuss Additional Regulations
This same year, rumors began regarding government agencies calling for a ban on Bitcoin mining. As discussed above, the ban forced China’s second-largest mining hub to close, making these rumors a reality.
Other cryptic, non-detailed rumors included a potential change in China’s outlook on cryptocurrency. In 2019, there were hints that regulations and restrictions against Bitcoin could change once the Forex markets reformed. However, it does not appear much has changed about China’s opinion at all.
What Cryptocurrencies Are Legal in China?
In China, cryptocurrency is not a recognized legal tender. As a result, China banks do no accept cryptocurrencies and cannot provide related services.
Bitcoin Banned in China
In 2019, the People’s Bank of China blocked access to foreign and domestic crypto exchanges — including BTC.
Over the last several years, government actions were key indicators that the ban was coming, and Bitcoin would face the consequences.
Even in 2017, Chinese authorities banned initial coin offerings (ICO), a fundraising process involving cryptocurrencies. This ban caused a 6% decline in BTC pricing. Additionally, it forced the Shanghai bitcoin exchange to shut down.
How to Buy Cryptocurrency in China?
Since China banned bitcoin, it’s impossible to purchase cryptocurrency through any Chinese institution.
But if you’re trading in China, cryptocurrency isn’t impossible to acquire. You just have to go about your purchasing carefully to get around the Bitcoin ban.
One way is to use Local Bitcoins, a person-to-person (P2P) Bitcoin exchange. However, if you’re on the mainland, you’ll need a VPN to register.
Once you’re on the main page, change your currency to CNY, and you’ll view a list of traders in mainland China, Hong Kong, and neighboring countries looking to sell.
Before selecting a seller, check out their ratings. Only opt for sellers with a 100% feedback score.
If you have trouble with Local Bitcoins, Paxful is another available option. The platform is similar to Local Bitcoins and includes support for purchasing.
The steps for purchasing are the same as Local Bitcoins — choose your currency and find a top-rated seller.
What Regulations Is China Planning for Cryptocurrencies?
The People’s Bank of China has recently launched its own digital currency. Like other cryptocurrencies, it’s computer code turned to legal tender.
However, the Chinese cryptocurrency is under the control of the government. It provides them with additional tools for monitoring the Chinese people and the overall economy — effectively squashing out the anonymity factor and decentralized exchange that drew users to Bitcoin and Ether.
Furthermore, Beijing seeks to make the Chinese cryptocurrency — the digital yuan — available for international use.
Mu Changchun of the People’s Bank of China says the implementation of the digital yuan is a way of planning ahead and protecting currency sovereignty in China. Mr. Mu also claims the China bank system will limit the tracking of individuals, which he refers to as “controllable anonymity.”
Restrictions on other cryptocurrencies in China appear to grow stricter each year as the government paves the way for the digital yuan.
China Cryptocurrency Common Questions
When Did China Ban Bitcoin?
China banned Bitcoin, and other foreign and domestic cryptocurrencies, in 2017.
Is Bitcoin Legal in China?
It is not illegal to hold Bitcoin or other cryptocurrencies, but the country bans the digital exchange.
In China, Bitcoin is not a legal tender, and there are no safety features protecting users from fraud. Therefore, you cannot use Bitcoin or other cryptocurrencies as actual currency.
Additionally, financial institutions cannot offer services related to Bitcoin or other cryptocurrencies (including trading).
When Will China Approve Cryptocurrency Exchanges?
There’s no telling if or when that will happen. A recent report indicates even searching for crypto exchanges on China’s internet is impossible.
Keywords related to popular trading platforms, like Binance, now produce no results.
How Long Will China’s Cryptocurrency Ban Last?
In China, cryptocurrency has met with restriction after restriction by the Chinese government. This tightening of regulation has only increased since 2017 when local exchanges were forced to shut down.
China banning cryptocurrency is no recent affair, and the ban on bitcoin does not have any slated end date.
That said, cryptocurrency in China seems to be taking another route. Test trials of the digital yuan, a Chinese cryptocurrency regulated by the government, rolled out in 2020.
Digital currency acts as legal tender alongside physical bills and coins. Rather than add more money to the economy, it’s meant to replace physical fiat currency over time.
As the efforts of the Chinese government focuses on retaining the sovereignty of the yuan and crypto restrictions continue to tighten, it’s safe to say the Bitcoin ban will remain for a while longer.