What China Ban? Cryptocurrency Market Cap Rebounding

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What China Ban? Cryptocurrency Market Cap Rebounding

10 Nov. 2017

The value of bitcoin dropped after Chinese regulators banned enterprises from using cryptocurrency offerings to raise funding (ICOs).

ICOs enable start-ups to raise capital by selling new coins like bitcoin in exchange for cash. However, the People's Bank of China claims that this technique, which has gained popularity in China and around the world, is illegal fundraising.

What is China's Ban?

As part of its existing rigid capital controls, China imposes an annual allowance of $50,000. This is on the acquisition of foreign currency. As a result, the capital flight enabled by bitcoin is particularly noteworthy.

Before, the wealthy in China avoided capital controls. They did this by buying foreign real estate. Moreover, inventing clever invoicing for international trade. It even helps force its workers to send cash to foreign bank accounts.

Residents in China can now buy more foreign assets. Without the inspection of Chinese authorities, thanks to Bitcoin. Bitcoin and many other blockchain technologies, like cryptocurrencies, are decentralized. They can be used to avoid capital controls. It is in comparison to traditional currency exchanges that use the banking system.

Chinese officials have always been concerned about capital flight despite rigorous capital controls. The usefulness of these currency controls is contested, with some analysts claiming that capital flight increased between 2009 and 2017. Meanwhile, the PBOC prohibited bitcoin exchanges from operating within China in 2017.

The 2017 prohibition didn't go as far as outlawing cryptocurrency ownership or mining. The recent ban finally does this. China did not mention capital flight as a rationale for its cryptocurrency limitations in 2017. The Chinese government did impose more limits on Chinese companies' investments abroad that same year.

What Is China's Reasoning For Declaring War On Cryptocurrencies And Digital Currencies?

China's government has declared war on bitcoin and other currencies, prohibiting initial coin offerings and closing all Chinese digital currency exchanges.

OKCoin and Huobi, two of China's largest cryptocurrency exchanges, announced on Friday night that they would cease all bitcoin-yuan trading by October 31. BTC Shanghai, a China bitcoin exchange, announced a day earlier that it would cease operations on September 30.

The shutdown of the three largest cryptocurrency exchanges and at least 20 other smaller transactions in China demonstrates Beijing's centralized attempt to limit or perhaps eliminate cryptocurrency on the territory. The government's decision briefly dropped the bitcoin price below US$3,000 before rebounding by more than 20%.

During the Wanxiang cryptocurrency event, reports circulated that the inventors of new tech enterprises had devised new ways to circumvent the ban.

They would refund the money back to investors but would do so in Hk or Singapore. Some investors stated that they would reinvest their funds. If this is correct, Chinese money withdrawn from the market has returned via Hk and Sing.

Are Chinese Still Using Cryptocurrency?

The Media Reported on September 21 that certain Chinese were exchanging digital currencies through WeChat, a Hong Kong-listed publicly traded corporation.

It was anticipated that China would start cracking down on that trade as well before the end of October. Moreover, either Chinese investment will proceed to go offshore, or the recent trend of increasing market valuation for crypto will reverse.

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