What happens when one of the world’s leading cryptocurrency traders suddenly shuts its doors? In the past few months, China has been finding out.
Since its crackdown earlier this year, China’s official line on cryptocurrencies has been “no, thanks.” Yet despite Beijing’s decision to close down cryptocurrency exchanges and ban initial coin offerings (ICOs), there is plenty of evidence to suggest that Chinese bitcoin fervor has not subsided – and may even be intensifying.
So how are China’s cryptocurrency enthusiasts learning to live with the ban – and how are some trying to circumvent it?
China’s private, over-the-counter (OTC) trading has skyrocketed. The authors of China’s National Committee of Experts on the Internet Financial Security Technology’s Bitcoin OTC Report last month claimed, “OTC trading is booming […], which warrants further attention.”
Indeed, Chinese yuan OTC bitcoin trading has risen threefold since the ban per the report, rising from just 5 percent in early September to around 20 percent in October.
According to the South China Morning Post, Chinese traders are using OTC platforms to buy and sell cryptocurrencies, using “bank transfers, Alipay and WeChat Pay” to process payments.
The paper also quotes Leonhard Weese, president of Hong Kong’s Bitcoin Association, who says mainlanders are shunning traditional chat apps and holding cryptocurrency-based conversations on encrypted platforms like Telegram to avoid the prying eye of the authorities.
Weese notes, “Telegram is very popular for large OTC trades, while WeChat is used by the less paranoid.”
Many pro-cryptocurrency analysts in East Asia were keen to point out that China’s losses would be everyone else in the region’s gain in the wake of the crackdown. And there is certainly a good deal of evidence that would suggest China’s bitcoin enthusiasts have chosen to jump ship rather than simply cease to operate.
Indeed, earlier this month, Huobi, once the beating heart of the bitcoin trade, has just popped back onto the radar in Japan. At its pre-ban peak, Huobi’s Beijing-based, transaction fee-free platform boasted subscribers from over 130 countries and regions. It also accounted for 60 percent of worldwide bitcoin trading.
The company released a statement on December 7 claiming it would begin operating two exchanges in conjunction with financial services company group SBI Group.
The move is nothing if not significant. SBI operates a range of services in Japan and elsewhere in Asia, including large-scale venture capital operations. In recent months, it has been particularly active on the cryptocurrency front.
It was named as one of the Japanese government’s 11 approved cryptocurrency exchange platforms back in September. SBI has also announced it wants to create “a dominant cryptocurrency exchange platform,” as well as unveiling “tentative” plans for a new exchange platform in Hong Kong. On paper, the combined powers of Huobi and SBI have the potential to eat into the market share of some of the world’s biggest platforms, and regional giants like Bitflyer.
Indeed, in October, Bloomberg quoted the CEO of Quoine, one of Japan’s biggest exchange platforms, as saying “We’re talking to almost all of those [Chinese] guys. They’re all desperate now. There are a lot of Chinese retail people reaching out to us, but we can’t handle it.”
The Bitcoin Association’s Wesse also writes that many Chinese are taking advantage of the fact that they can still trade in Hong Kong, which is exempt from the mainland’s ban. He notes, “Bitcoins are bought cheaply in Hong Kong, they can be sent to China at virtually no cost and without restrictions, where they can be sold on private chat groups and public platforms.”
And per South Korea’s Joongang Ilbo, an “influx of Chinese investors is believed to be one of the main causes of bitcoin fever” in South Korea, where cryptocurrency mania is now front page news.
Analysts have been keen to point out that China was the first East Asian country to lead 2017’s remarkable cryptocurrency boom, helping the region become bitcoin’s de facto “center of gravity.” Indeed, as individual wealth increases in China, individuals are looking to safeguard their funds. Property prices remain prohibitively expensive, while the stock market is fully valued. This has led many to conclude that cryptocurrencies still represent their best investment prospect – even in post-clampdown China.
For its part, the government has done its best to maintain its seemingly hardline stance. The People’s Bank of China claimed earlier in the year tried to justify the ICO ban, claiming that 90 percent of the ICOs launched in the country were “fraudulent.” A senior figure at the bank also added, “There’s only one thing we can do [with bitcoin] – watch it from the bank of a river. One day you’ll see bitcoin’s dead body float away in front of you.”
Many have expresses concerns that some 80 percent of the world’s bitcoin mines are still located in the China, with the frosty steppes of Gansu and Inner Mongolia providing prime conditions for miners. The worry is one day, the Chinese government may turn on the miners.
Last month, the Sichuan Electric Power Company announced that companies using electricity to produce bitcoin were engaging in “illegal operations.” The energy provider called on hydroelectric power stations to “stop the production of bitcoin or face punishment." And more recently, experts have warned of China’s ability to “sabotage” cryptocurrencies by potentially “taking control” of the country’s bitcoin mines.
Regardless, it is hard to forget that only a few months ago, the government was taking a very different tack, with talk mooted of a national cryptocurrency and successful pilots that indicated inter-bank cryptocurrency transactions were viable.
Furthermore, the deputy director of the People’s Bank posted enthusiastically on the matter, opining that a cryptocurrency could be integrated with China’s existing banking system, and positing that commercial banks could offer digital wallets services for such a currency.
An end in sight?
Ever since the ban came into place, experts have suggested the government’s measures may be temporary. Indeed, the government has already u-turned on one big crackdowns this year, effectively reversing its decision to bar tourism to South Korea.
Interestingly, there is no suggestion that China has abandoned its pursuit of a national currency. Blockchain CEO Peter Smith claims the world may now be a mere 24 months away from a major government issuing a sovereign cryptocurrency, Beijing is quite probably hoping it can surprise the world by pipping everyone else to the post from behind closed doors.
No matter what happens in the world of politics, however, China’s cryptocurrency enthusiasts remain mainly undaunted. Whether they choose to trade abroad, start businesses overseas, trade OTC or just lay low and wait for regulations to be lifted, they are most certainly in the cryptocurrency game for the long term – with a resolution that no one, not even the Chinese state, can hope to squash.
Featured image from Shutterstock
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Writer for the BBC, The Guardian, The Jewish Chronicle, Korean Air’s MorningCalm, Chosun Ilbo, Weekly Chosun, Kyunghyang Shinmun, Essen, The Korea Times, Joongang Ilbo, Korea IT Times and many others.