Bitcoin is no stranger to controversy and drama- since its launch in 2011, it has been the victim of hacking, regulation, widespread debate, critique from some of the world’s leading financial figures, and now illegality in China. While it seems that Bitcoin has had every possible obstacle thrown at it, one thing is clear, that it will take more than a few bumps in the road to derail the world’s leading alt currency.
While it seems that Bitcoin has had every possible obstacle thrown at it, one thing is clear, that it will take more than a few bumps in the road to derail the world’s leading alt currency.
That said, there is is no doubt that this is a devastating blow for Bitcoin. With more than 90% of Bitcoin trading taking place in China, with little or none existent trading fees, and with most Bitcoin mining being done in the country, this recent news is sure to send ripples through the Bitcoin and virtual currency world.
At a time when the value of the currency is at an all-time high, and with a few years left until the last of the coins are mined- it certainly does add a bit of uncertainty into the mix.
With so much misinformation floating around, and many unreliable sources coming out of one of the most secretive countries in the world, it can be difficult to get to the bottom of the situation. Thankfully, we are here to explain a few key facts surrounding the furore.
So what exactly is going on, what caused it, what are the reasons why, and what are the common misconceptions about the China ban on Bitcoin?
With so many conflicting stories circulating in the press, as well as significant concerns about the validity of news reports coming out of China; we have tried to get to the bottom of things and to provide you with the information that you need to understand this latest setback in the world of cryptocurrencies, and just how serious it is, or is not.
Why Did China Ban Bitcoin (The Official Reason Why)?
Recently, China’s national and government-owned bank has announced a “comprehensive ban” on any platforms that allow citizens to buy or sell virtual or cryptocurrencies in China.
As well as significantly cracking down on the trading of such currencies, the government also announced their intention to shut down all Bitcoin exchanges that operate within the country and issuing a directive to the country’s currency exchanges. While it is not known if this has been transposed into national law, or whether it was just a declaration of intention- one thing is sure, it has sent shockwaves through the cryptocurrency world.
According to various leaked documents, exchanges in Beijing have been instructed to “unwind their operations and provide information on bank accounts used to clients’ deposits by Wednesday”.
Sources have also stated that mainland access to foreign bitcoin exchanges would also be blocked by Firewall, meaning that well-known exchanges such as Coinbase would become inaccessible to anyone living in or try to access the site from inside China.
In other words, China is completely cut off from the world of cryptocurrency and alternative currencies, and for any citizen to continue trading, or investing in virtual currencies, it would require significant technological know-how and a big personal risk.
But this has been on the cards for a while, and various sources have been hinting at the eventual ban of exchanges, due to different signs that the government have given along the way.
Back in January, China put a stop to a no-fee trading of Bitcoin, they then stopped customer withdrawals for several months and then began putting other regulations on Chinese Bitcoin exchanges. As a result of this, trading in China took a hit and other Asian countries such as Japan, picked up the slack.
Then, two weeks ago, the Chinese government announced that they were making it illegal to make public offerings of Bitcoin, and within a few days, the new law came into the public domain.
So, Why Is the Chinese Government Cracking Down on Cryptocurrencies?
We all know that the Chinese government are renowned for exerting, what is considered as unnecessary and excessive control over citizens and their rights. From how many children they can have to what they can look at and access on the internet, the government have an element of control over every aspect of day to day civilian life.
With such strict controls in place in all other areas, it surely was only a matter of time before Bitcoin was curtailed as well.
As we all know, Bitcoin is a virtual cryptocurrency that is entirely self-governing. It is not controlled by any government or central authority, nor is it representative of anything such as gold reserves, or other types of assets. As such, it means that it cannot be controlled by any government- something that we imagine scares the life out of the Chinese government.
According to leaked documents, the higher echelons of Chinese power were concerned that the popularity and the ever-increasing strength of the currency would “weaken the official control of the country’s money supply”. Because a significant number of private investors have bought heavily into the currency against the yuan, it is no surprise that it caused ripples of concern through the authorities.
Public opinion, however, is rather divided on the real motives behind the ban.
Is it a noble gesture designed to protect the public from market manipulation and to ensure the ongoing financial stability of the country? Or is it a draconian measure designed to hamper free trade and the stratospheric surge in the popularity of one of the world’s most free markets?
The jury is still out on that, much as it was when the CEO of one of the world’s largest banks declared that Bitcoin was nothing but a fraud. With something like Bitcoin, which has gained so much traction and power, and yet remains beyond governmental control, one has to wonder if the reasons given for criticising or in the case of China, banning it, are real, or merely superfluous.
Which Exchanges Are Banned?
Well, there is a long and a short answer to this question. The short version is that all Bitcoin transactions that are operating in China will be required to cease trading and to hand over details of customer accounts to the government.
The long answer is that even foreign exchanges will be banned, although as the Chinese government has no jurisdiction over foreign entities, it will just stop people in mainland China from gaining access to them via the internet, through use of its great firewall. So, in conclusion, in one way or another, every single Bitcoin exchange in China is now banned or inaccessible.
When the announcement was made last week, China’s longest running Bitcoin exchange BTC China announced they would suspend all local trading services at the end of September. Quickly following suit, other major exchanges such as Huboi, ViaBTC, and OKCoin also announced that they would cease all operations by the end of October.
Any smaller or remaining exchanges will have to shut down of their own accord or else risk being seised and incurring severe penalties from the government if they do not adhere to the new directive.
Common Misconceptions About the China Ban on Bitcoin
This is the end of Bitcoin in China
Well, this is not strictly true. Although all online transactions have been banned and all facilitators of such are in the process of being shut down, so far, there has been no mention of over the counter transactions.
This means that the aggregate Bitcoin business may not be eliminated, although many believe it is only a matter of time before over the counter transactions are made illegal, or at the very least, severely and heavily regulated and controlled.
This is the end of Bitcoin globally
This would be a bit of an overreaction, as we will touch on later on, half of the appeal of Bitcoin is that it is an underground currency and something that is out of the reach of the rules and regulations of authority. There is no doubt that the Chinese will find some workaround and that this setback will not impact the industry as much as first thought.
Bitcoin will become worthless
While yes, the currency did take a bit of a hit when the news came out, it is highly unlikely that this is something that will last for very long. The value of Bitcoin is on a steady upwards trajectory, and as we near the date when the last Bitcoin will be mined, it is expected that it will continue to go up in value regardless of any regulatory setbacks that may or may not occur.
This gives more weight to the argument that Bitcoin is a fraud
Again, this is an argument which doesn’t carry much weight. Many individuals have spoken out against Bitcoin, but the majority of them work in finance in dire positions and therefore have a vested interest in Bitcoin not becoming a successful of a viable alternative to traditional currencies.
The decision of another government to make Bitcoin illegal, or at least the trading of it illegal, has no bearing on its validity. As it is widely believed that the reasons behind this stringent legislation are rather nefarious and self-serving for the governments in question, it doesn’t cast any particularly negative aspersions on the positive benefits of Bitcoin.
How China Ban on Bitcoin Affected the Market
With the cryptocurrency world in a state of shock, no one is quite sure what will happen until the dust settles. With this move long-predicted by industry specialists and experts, it seems to be commonly accepted that the ban will be here to stay.
Some of the initial impacts on the market include the inevitable drop in the price and value of Bitcoin. Shortly before the news broke, the price of a Bitcoin reached the stratospheric high of $5,000- a figure previously never achieved.
After the news came out of China, cryptocurrencies, in general, fell 20% in value in just one day- many currencies managed to make up these losses but just in time for the second fall the next week.
As well as causing a (believed to be temporary) dip in the value of Bitcoin, it is inevitable that the ban will have a large effect on the mining of coins. As China is home to the greatest number of Bitcoin miners in the world, it is to be expected that many mining operators will either shut down or switch to another cryptocurrency that is not so harshly opposed by the government.
If this is to happen, Bitcoin production and the value of Bitcoin will take a substantial hit.
Many industry experts are also concerned that China’s drastic steps may influence other countries to follow suit. Countries such as Bolivia, Ecuador, and Bangladesh have all outlawed Bitcoin, and now one of the world’s leading economic powers have taken steps to do the same, people are wondering if it will influence other countries to do the same thing.
With many countries taking a neutral stance and not legislating for or against, it is a delicate time reputationally for the future of Bitcoin. But, as the very nature of the currency is, it flourishes without the influence or input of central governments, so how much of an effect a ban will have is up for debate.
If anything, it is speculated that China’s actions will just seek to bring more intrigue and popularity to the currency and that forcing it underground is not necessarily a bad thing.
The concept that it is a cryptocurrency entirely dependent on any regulatory influence is one of its biggest attractions, therefore in the long run, although over-legislation and regulation may make it a bit harder to access, it is not expected that it will negatively influence its popularity.
The truth is that only time will decide the future of the world’s most famous, and controversial cryptocurrency, but if you want our opinion- don’t go cashing in your coins just yet as we are pretty sure Bitcoin is here to stay.
What is your theory on the common misconceptions about China ban on Bitcoin and other cryptocurrencies? We want to hear from you, so make sure to leave your opinion in the comments below.