A number of government announcements came out from China this week banning various crypto activities in mainland. Before you freak out and think crypto in China is over, keep in mind that since the last ban in 2017, the blockchain environment in China has become even more robust, there are more projects, and more money being poured in (mind you, on the local government level as well), and newsletters like mine still exist and is thriving 🤷♀️.
But of course the past does not not predict the future, and here’s my quick take on each of the ban announcements:
Keep in mind that China will always be pro- blockchain, but not pro- crypto. One outcome of blockchain is that it will enable everything to be tracked more extensively, why wouldn’t the Chinese regulators want that? They can then monitor even more than what they are doing now. And here I return to my previous prediction that the crypto winners in China will be top tech companies whom are trusted and supported by the regulators – Tencent, Alibaba, JD. And so far those are the only companies that have successful implemented blockchain projects in mainland China (Tencent with some blockchain based dApps, Alipay doing international remittance, etc)
There are a lot of shillcoins in China and most of the ban is actually targeted to purge those. There are a lot of obscure and random coins that add no technological value, has no relationship to blockchain and literally is just called a token, which you can see how easily non- savy people who want to make a quick buck can be fooled. Beijing’s ban of commercial venues from hosting cryptocurrency events was targeted to purge those coins. This simply means that companies cannot have events to pitch tokens, but hosting blockchain events is totally fine. Taking some anecdotes from Benny Giang from Cryptokitties on his recent trip to Shanghai, prior to getting on stage at the gaming conference ChinaJoy, companies were told to remove the words “cryptocurrency”, “bitcoin”, “ethereum”, and any types of references to coins and crypto money from their presentations. So regardless of whether companies were actually pitching cryptocurrencies, they were not allowed to reference or show images of them, as this may mislead people. And for folks planning their Asia trips, be sure to remove references to coins when you are giving presentations.
Blocking access to over 120 offshore exchanges’ websites in the mainland- these websites are primarily blocked based on IP addresses, which can easily be circumnavigated by VPN or similar tools. Ways to get around is similar to how Facebook and Google are circumnavigated around in China.
A number of media Wechat accounts have been banned – lots of the accounts were orignally just shilling coins. I still have accounts that cover Binance like BABI Caijing or a few others are working fine. This is merely a temporary purge and the quality accounts discussing tokens are still going to exist. They may be more carefully monitored, but they will still exist.
Large Alipay and Wechat transactions for crypto purchases have also been banned (http://bit.ly/2MQQkbB)- This may have the biggest impact relatively to other bans as large number of transactions in crypto has been done on OTC through Wechat and Alipay. The government has been monitoring this for some time and they are now curbing the transaction sizes, possibly due to the risk of RMB depreciation forcing people to flee away from RMB as mentioned by former Huobi’s chief strategy officer. http://bit.ly/2P44Nyt There will be a temporarily hit to the crypto prices and spreads will increase ( spread was +10% in OTC after China banned fiat to crypto). But be assured the Chinese will figure out a way to transfer money to buy tokens should they need to. So in the long term, nothing has really changed. The main takeaway from these bans to me means that the government merely does not want crypto transactions activities to occur in the mainland. But what the Chinese people do outside of the country is all fair game and many folks will indeed migrate to outside of China.And don’t be fooled. Young folks in China are working tiredlessly for 80-100 hours weeks to build interesting blockchain projects and what the government literally has done is trying to purge the shillcoins, which is actually quite sophisticated on their part to do so. But those shillcoins will continue to come back in innovative ways to try to scam people.
I suspect in the near term you may see more blockchain projects from mainland moving elsewhere to avoid these types of operational hiccups and regulatory hurdles all together. They will move to countries that are geographically close to China such as Singapore, Japan, Korea, Thailand. And that will only force other country’s regulators to become more sophisticated in their crypto infrastructure and token evaluation process. This is all good for accelerating the Asia crypto ecosystem and making it more robust.
I welcome all thoughts and feedback. 🙏