The Chinese Government has been tight-lipped about its exact stance on cryptocurrency since it first began to gain mainstream attention. However, that all changed when China announced an official ban on cryptocurrency trading in September 2017.
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On September 4th, 2017, China’s central bank, the People’s Bank of China (PBOC), announced a ban on Initial Coin Offerings (ICOs). The news sent shockwaves through the crypto world, and the markets took a nosedive. The PBOC’s decision was a major blow to the fledgling industry, and it called into question the future of crypto in China.
In the months leading up to the ban, China had been one of the most active markets for ICOs. Companies looking to raise funds would sell digital tokens to investors, who would then be able to use those tokens to access the company’s product or service. The ICO craze had caught on in a big way in China, and by September of 2017, Chinese companies had raised over $1 billion through ICOs.
The PBOC’s decision to crack down on ICOs was likely motivated by a desire to protect investors from fraudulent projects. There were concerns that many ICOs were little more than scams, and that gullible investors were being taken advantage of. The problem was compounded by the fact that there was no regulatory framework in place for ICOs.
In the wake of the ban, many Chinese companies simply moved their operations overseas. Hong Kong and Singapore became popular destinations for crypto projects looking to tap into the Chinese market. And while the ban put a damper on the ICO market in China, it didn’t stop Chinese investors from buying into existing cryptos like Bitcoin and Ethereum.
The Background of the Ban
In September 2017, the Chinese government announced a crackdown on cryptocurrency trading, resulting in a ban on all exchanges. This was a major blow to the crypto world, as China had been one of the largest markets for digital currencies. The ban caused a sharp drop in prices and disrupted trading activities around the globe.
It is still not clear why the Chinese government decided to ban crypto trading. Some say it was because of concerns about money laundering and fraud; others believe it was to protect the Chinese yuan from potential competition from digital currencies. Whatever the reason, the ban had a major impact on the crypto world and is still being felt today.
The Aftermath of the Ban
The Aftermath of the Ban
In the aftermath of the ban, Chinese exchanges began to relocated overseas, with many of them setting up shop in Hong Kong. There was a brief influx of Chinese trading activity in Hong Kong, but this was quickly curtailed by the Chinese government. In September 2017, China’s central bank warned against Initial Coin Offerings (ICOs), calling them “illegal fundraising activities.” This had a chilling effect on the ICO market and led to a major decline in crypto prices.
In February 2018, China’s National Internet Finance Association (NIFA) released a report which labeled Bitcoin and Ethereum as “virtual commodities” and not “currencies.” This report was widely interpreted as a sign that the Chinese government was not planning to change its stance on crypto anytime soon.
Since then, there has been a steady stream of negative news coming out of China with regards to crypto. In May 2018, it was reported that Chinese regulators were planning to crack down on domestic cryptocurrency exchanges once again. This caused a significant drop in crypto prices and led to even more exchanges shutting down or relocating overseas.
At this point, it seems unlikely that the Chinese government will reverse its position on cryptocurrency anytime soon. The crackdown on domestic exchanges appears to be part of a larger effort to control capital outflows and crack down on money laundering. Given these objectives, it is unlikely that the Chinese government will soften its stance on cryptocurrency in the near future.
In September 2017, the Chinese government outlawed Initial Coin Offerings (ICOs), shutting down the primary method for projects to raise funds in the country. In February 2018, they moved to banning crypto exchanges and then, in May 2019, they banned crypto trading on mobile apps.