Thursday’s Wall Street Journal (WSJ) report details how crypto users in China are conducting transactions in commonplace locations in order to circumvent the country’s prohibition on cryptocurrencies.
According to sources with knowledge of the transactions that the WSJ quoted, traders convene in public areas, including snack kiosks, cafés, and launderettes in order to exchange wallet addresses, coordinate bank transfers, or cash payments for cryptocurrencies.
China is still a hotbed for crypto activities
The People’s Bank of China (PBOC) deemed all crypto-related operations unlawful in 2021, and crypto exchanges have since ceased allowing mainland Chinese people to register accounts on their sites. Nonetheless, according to blockchain intelligence firm Chainalysis, the country’s over-the-counter (OTC) trading volume will reach $86.4 billion in 2023.
Traders are successfully avoiding the restriction by completing transactions in ordinary settings. They swap wallet addresses, handle bank transfers, and even covertly exchange cash for cryptocurrency.
These physical trades are especially common in China’s interior regions. Preoccupied with other socioeconomic issues, local governments pay less attention to executing the central bank’s mandates.
Furthermore, social media platforms such as WeChat and Telegram are increasingly important tools for these dealers. Buyers and sellers can connect directly through dedicated groups, circumventing traditional exchanges.
This trend towards over-the-counter (OTC) trading is noteworthy. According to Chainalysis, a blockchain intelligence business, China’s OTC trading volume will reach an astounding $86.4 billion in 2023.
While the central authorities continue to crack down on crypto-related activity, the crypto community’s tenacious spirit seeks new ways to survive and thrive. This persistence highlights the difficulties in enforcing digital currencies and serves as a cautionary story for other authorities considering imposing similar restrictions.
China’s crypto ban effect on the global digital asset industry
As global agreement on whether and how to regulate cryptocurrencies remains elusive, China provides a case study on the practical limits of issuing blanket decrees on borderless technologies.
Different governments have taken varying approaches to crypto. While El Salvador has welcomed digital assets, other governments, such as China, have outright outlawed cryptocurrencies.
China’s relationship with cryptocurrencies has been a complex one. While the country has been a major player in the mining and trading of digital assets, it has also been wary of the potential risks associated with these decentralized currencies. In September 2017, China banned Initial Coin Offerings (ICOs), citing concerns about fraud and illegal fundraising activities. Fast forward to 2021, and the government escalated its regulatory measures by targeting cryptocurrency mining operations.
One of the immediate consequences of China’s crypto ban was the mass exodus of mining operations from the country. China had long been the epicenter of Bitcoin mining, accounting for a significant portion of the global hash rate.
The government’s crackdown on mining activities, citing environmental concerns and financial risks, led to the closure of numerous mining farms. Miners, in search of more crypto-friendly environments, sought refuge in countries like the United States, Canada, Kazakhstan, and others.
The relocation of mining operations profoundly impacted the global distribution of mining power. The hash rate, which measures the computational power dedicated to the Bitcoin network, experienced a significant decline as Chinese miners went offline.
This shift in mining dynamics not only affected the security and stability of various blockchain networks but also triggered a restructuring of the mining industry on a global scale.
Beyond the direct impact on cryptocurrencies, China’s crypto ban also affected industries closely tied to digital assets. Companies involved in manufacturing and selling mining hardware experienced a decline in demand, while blockchain-related businesses faced regulatory uncertainties.
The global supply chain for crypto-related technologies underwent changes as companies adjusted to the new geopolitical landscape.
China’s crypto ban has undoubtedly had far-reaching effects on the global digital asset industry. The shift in mining power, market dynamics, and regulatory responses has reshaped the landscape, creating both challenges and opportunities.
As the industry adapts to these changes, it remains to be seen how new geopolitical developments and regulatory shifts will further impact the future of cryptocurrencies on a global scale.