China’s crypto crackdown: What it means

Industry takes China’s crypto ban seriously.

Markets unfazed by China ban.

Exchanges look for regulatory havens.

We’ll have more on those stories — and other news shaping the cryptocurrency and blockchain world — in this episode of The Daily Forkast, September 27.

Transcript

Welcome to The Daily Forkast September 27, 2021. I’m Angie Lau. Editor-in-Chief of Forkast.News covering all things blockchain.

Well, China’s crypto crackdown shook the industry. The Chinese government banning all cryptocurrency related transactions and activities, including those made via exchanges based outside of the country. What it all means in this special edition of The Daily Forkast.

Let’s get you up to speed from Asia to the world.

What we’re seeing the fallout already, one of the first things to check out is how crypto exchanges are reacting, and that’s what you’re looking for to see how participants view the possibility of enforcement.

Well, I can report it was almost immediate this policy shift taken very seriously here.

Huobi has stopped registering new customers in mainland China and says it plans to retire all mainland China user accounts by the end of this year.

Industry leaders in China say China is very serious this time, especially when this notice is issued by not just the central bank, but a united front from all legal public security and banking authorities.

Forkast.News, Timmy Shen has more.

Crypto exchange Gate.Io says it will pause onboarding new Chinese users, but existing users won’t be affected at this point. They account for 25% to 30% of its users.

Both Binance and OKEX told Forkast.News that they have been blocked in mainland China since 2017.

Meanwhile, industry leaders say they are supporting a ban, especially since it was issued by so many authorities. Zhou Yu of UnionPay, says the move suggests a stricter than ever regulatory stance on cryptocurrency.

“From the consumer’s perspective,[the ban] is to protect the interests and rights of consumers,from being scammed or suffering investment losses.”

And He Yifan of Red Date Technology, the company behind the Blockchain-based Service Network, a public private nationwide infrastructure project designed to spur mass adoption of blockchain technology, said the move was needed.

“This kind of transaction is hard to regulate, and can’t allow all residents to trade fairly. It’s hard to regulate technically. So it has to be banned in China.”

Several experts told Forkast.News the notice implies that trading between individuals is not banned, so the impact for them might be minimal. But one investor who requested anonymity said some casual investors might just give up, however, hardcore traders may find other ways to continue operating, possibly by using less regulated decentralized exchanges.

For Forkast.News, I’m Timmy Shen, Taipei, Taiwan

So why now? What’s the intent behind PBOC’s policy shift to include all crypto activities across the board?

Well, I spoke to He Zhiguo, Fuji Bank and Heller Professor of Finance at the University of Chicago Booth School of Business, who has well-placed sources in China and offers this insight.

“The news coming out from a Friday afternoon was not a big surprise, but also feel like I can learn from some learn something from it.”

“First of all, I feel must be that the implementation of the tight policy was not working as fast as the policymakers were hoping. One policy, one policy background that I don’t see too much of a discussing in the crypto space was this carbon-neutral background, which right now is hitting Chinese social discussion room everywhere, like this electricity cut.”

“Those are very serious things, like think about, you know, you’re going to wonder why China government, where so much into this? It’s in a way that that’s the only place where the U.S. and China reach an agreement and they would like to work together.”

“OK, so now suppose that’s the real goal. Look, Beijing doesn’t like the crypto mining anyway. They, you know, we have our own e-CNY, it’s rolling out soon. So I don’t see why they are not doing it. To the fact that they’re just escalating the intensity, just showing that it may be, you know, things were not as good as they thought. So let’s just do it.”

Over onto the markets now, although we did see a dip, it proved relatively small compared to other recent headline grabbing events.

While US$130 billion was wiped off the total global cryptocurrency market cap between September 24 and 26 that pales in significance compared to the US$932 billion wiped out in May’s crash.

And as trading got underway Monday morning Asia time, markets were bouncing back.

The more nuanced story here in the right question to ask is where is the money flowing to? Some big movements in crypto flow.

Forkast.News Carolyn Wright reports.

Bitcoin dropped to just under US$41,000 Friday, but has since rebounded 7%, trading above US$44,000 Monday morning Asia time. One expert told Forkast.News that such stories are no longer spooking investors as they used to.

“This is a bit of the story of the boy who cried wolf enough times that people stop being alarmed.”

D’Anethan says growing global crypto enthusiasm could well balance out a lack of transactions from China.

And our Editor-in-Chief spoke to Sam Bankman-Fried of FTX, who told us the market is cluing us all in: responding not by exiting crypto altogether, but with what they’re buying instead.

” What you’re seeing here, I think, is the market reacting to, first of all, an expectation that will be, and to a lesser extent, OKEX. I think they haven’t yet announced what their reaction in response is going to be. If any of this are going to be hit pretty hard from this, that they may lose a lot of their Chinese user base, combined with an expectation that that might flow to other exchanges or to decentralized exchanges.”

Bankman-Fried says he’s been keeping watch on strong upward movements in DeFi tokens.

For Forkast.News, I’m Carolyn Wright.

By the way, more of our interview with Sam Bankman-Fried, CEO of the second-largest crypto derivatives exchange in the world, FTX, a little later.

But for the bigger picture and the bigger context here, China’s clampdown on crypto started much earlier than Friday.

You’ll remember after the crackdown on mining, it triggered mass relocation of mining operations out of China earlier this year.

Well, now exchanges are looking for more transparent regulatory havens. Singapore, which has a licensing framework for crypto under its Payment Services Act, has seen several Chinese cryptocurrency exchanges, including Binance, Bybit, Huobi, OKCoin, all set up shop in the city-state.

And just last week, the United Arab Emirates Securities and Commodities Authority signed an agreement with the Dubai World Trade Centre Authority supporting crypto trading and related financial activities in its free zone.

Now, over in India, the industry is seeing rapid growth despite concerns over the slow progress of crypto regulation. Huge numbers are actually getting involved in crypto investment.

The number of people employed by the crypto industry in the country is expected to balloon from 50,000 at present, to around 800,000 by 2030.

So as China clamps down, could this be the opportunity for India to rise up?

Forkast.News, Monika Ghosh reports from Mumbai.

India’s crypto industry is on a roll. There are currently 230 startups in the country that have registered a revenue growth of 40% to 50% in the last two years.

That’s four times the pace of the wider technology sector, and funding for those startups has increased eight times, with Silicon Valley investment titans including Mark Cuban and Tim Draper getting on board.

Retail ownership of crypto assets soared 612% between 2019 and 2020. And the number of Indian adults investing in crypto has more than doubled in the past year, increasing from seven million in 2020 to 15 million in 2021. That’s 1.8% of the adult population.

That’s meant foreign exchanges have been keen to get in on the action with moves into India. Binance acquired WazirX in 2019, and CrossTower entered the country earlier this month.

For Forkast.News, I’m Monika Ghosh, Mumbai, India.

So one big name that’s already made a move is crypto exchange FTX. I spoke to SBF, Sam Bankman-Fried, who told us that this has been a few months in the making.

The move to relocate its official headquarters from Hong Kong to the Bahamas. He says, you can’t single out Hong Kong here because it’s much broader than that.

“You know, we’ve been looking for where is a place that we do feel really comfortable establishing a headquarters and that has to be a place where we feel like there’s clarity from regulators. And, you know, in the same token, as you know, we’ve been really excited about the clarity that the Bahamian regulators have given. There are a number of jurisdictions that haven’t been giving that clarity, in fact, have been giving mixed or negative signals”

“You’re talking about Hong Kong, very specifically?”

“I think that’s one of many, and I think it’s not even so much an outlier. I think if you look at just many countries in the world right now, you will not see clear signaling from regulatory bodies there about what direction crypto policy is going to go in. And, you know, I think that’s been true in Hong Kong. I think that’s been true frankly in more than half of the jurisdictions in the world.”

“And you can sort of count on one hand the number of jurisdictions that have actually spelled out explicit policies for the whole, you know, for at least the majority of the crypto industry. So I think it’s less about singling out one jurisdiction as being behind here and more that just most are.”

“And that makes them not not great places to sort of like think about, you know, moving a lot of employees and hiring huge workforce and establishing a headquarters.”

“Yeah. And Bahamas has, you know, for years been growing that ecosystem. They’ve fallen out of favor, you know, initially in the first wave of blockchain projects and protocols and exchanges even. They’ve fallen out of favor because everybody was looking for the gold standard coming out of possibly Hong Kong or Singapore, definitely the United States. Now we’re seeing a return back to the first wave, and maybe it’s like what was once in style is now by default, back again. Because you know what people were looking for in terms of guidance from those first tier, you know, administrations and policymakers wasn’t really that quite clear.”

“Yeah, I think that there’s, you know, for a while, I think that we’ve seen, frankly, a little bit of overall optimism on much of the industry’s stance about specific jurisdictions following through on comprehensive regulatory regimes. You know, I think that frankly, these are things that take a long time to develop for most countries. And I think that you would have seen some companies move from place to place to place sort of going with the latest fad each time. And and the truth is, you’ll get a country that announces an intent to have a regulatory regime. For crypto, that doesn’t mean there will be a regulatory regime for crypto or that it will come in the next five years.”

Whether it’s down to changing regulation or increased demand. There could be more such moves to come.

Reading between the tea leaves is an important skill here in Asia, especially when it comes to policy and impact on the industry. It’s kind of something we do a lot here.

And that’s The Daily Forkast from our vantage point right here in Asia. For more visit Forkast.News and don’t forget to subscribe and click like if you’re watching us right here on YouTube.

Your support means we get to keep doing this for you, and our collective future might just depend on it. I’m Editor-in-Chief Angie Lau. Until the next time.