The Digital Yuan versus Bitcoin
The digital yuan versus bitcoin. What is the reason for the ban on cryptocurrencies in China?
The Digital Yuan versus Bitcoin. Blockchain companies continue to leave China amid tightening regulations. What is this connected with and why in the future the country is likely to only increase pressure on the digital asset industry.
Since mid-May, the bitcoin rate fell by 48%, to $ 34 thousand. The cryptocurrency rate began to decline sharply after the tightening of regulation of the digital asset market in China. Until recently, the country was one of the leaders in the industry, including in terms of the number of bitcoin miners. However, now everything has changed, in the last two months, not only miners, but also companies from the cryptosphere began to leave the country.
On July 5, blockchain company IBC Group announced plans to close data centers for cryptocurrency mining located in China. The company will transport equipment and employees from the PRC to the USA, Canada, the United Arab Emirates, Kazakhstan, Iceland, and various countries in South America.
How did it all start?
On May 19, three Chinese financial regulators overseeing online financial transactions, the payments market, and clearing banned local financial institutions from providing services related to cryptocurrencies. The statement explained that virtual currencies are not supported by real value, their prices are easy to manipulate, and trading contracts are not protected by Chinese law. After that, the bitcoin rate fell by a third per day, to $ 30 thousand.
A few days later, Vice Premier of the State Council of the People’s Republic of China Liu He called for stricter regulation of mining and crypto trading in the country. And the government news agency Xinhua published an article “Urgently eliminate the hype and chaos around virtual currency.” It discusses four risks associated with trading and using cryptocurrencies: market, transactional, technology, and compliance.
Against the backdrop of negative rhetoric regarding cryptocurrencies at the end of May, miners began to stop working in China. BTC.TOP and HashCow were the first to stop mining bitcoins. Also, the suspension of mining and customer service from mainland China was announced by the crypto exchange Huobi.
And in June, four Chinese provinces introduced a mining ban in two weeks. For example, the authorities of Sichuan, a major mining center for cryptocurrency, have approved measures to discourage mining in the region. First of all, this affected 26 companies that worked officially.
The People’s Bank of China (PBOC) also held a meeting with representatives of five Chinese banks and the Alipay payment system. The regulator instructed financial institutions not to participate in transactions with digital assets. Following this, the Agricultural Bank of China (ABC), the third largest banking institution in the PRC, issued a warning banning digital asset transactions. The bank promised to block all such transactions, as well as to terminate contracts with clients who performed these transactions.
What is the reason for this?
The Chinese authorities have set a goal to promote their own digital yuan, so they are fighting and will continue to fight unofficial cryptocurrencies at the state level. The Chinese are “clearing” the space by bans on mining.
Analysts at the BitXmi crypto exchange suggest that the tightening of cryptocurrency positions from a number of national provinces will also intensify, since Bitcoin is not controlled, which means it poses a threat.
At the end of June, passengers on the Beijing subway were able to purchase tickets using the digital yuan. And two weeks earlier, the Industrial and Commercial Bank of China (ICBC) was the first in the country to allow its clients to convert digital yuan into cash and vice versa.
Last year, the IPO of Ant Financial, Alibaba’s fintech business, was thwarted, in large part because of fears by the Chinese authorities that the Alipay payment system will compete with the digital yuan, said Nick Avramov, co-founder of digital asset consulting company DeFi Agency. According to him, a similar trend is now observed in the case of cryptocurrencies.
Recall that in September 2017, the People’s Bank of China banned initial offerings of tokens (ICOs) in the country and threatened to revoke licenses to sites that do this. Therefore, now, according to experts, the Chinese authorities are not revising their policy in relation to digital assets, but are implementing the practices and laws adopted earlier.
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