A Bitcoin ATM in Hong Kong.
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Some crypto holders in China and Hong Kong are scrambling to find a way to protect their bitcoins and other tokens after the Chinese central bank released a new document on Friday setting out tougher measures on their broader crypto breakthrough, including sophisticated systems for monitoring cryptocurrency transactions.
Bitcoin lost as much as 6% and ether fell as much as 10% amid a wider sell-off early Friday as investors digested the news.
“Since the announcement less than two hours ago, I’ve already received over a dozen messages – email, phone, and encrypted app – from Chinese crypto owners looking for solutions to their crypto holdings in forex and cold wallets access and protect them. ”David Lesperance, a Toronto-based attorney who specializes in relocating wealthy crypto holders to other countries to save taxes, told CNBC early Friday.
Lesperance said the move is an attempt to freeze crypto assets so that owners cannot legally do anything with it. “Aside from having nothing to do with an extremely volatile asset, I suspect that, as with Roosevelt and gold, the Chinese government will ‘offer’ them to convert it to e-yuan at a fixed market price in the future.” He said about President Franklin Roosevelt’s policy on the private ownership of gold, which was later abolished.
“I have been predicting this for some time as part of the Chinese government’s efforts to eliminate any potential competition with the incoming digital yuan,” said Lesperance.
The People’s Bank of China announced on its website on Friday that all transactions related to cryptocurrencies in China are illegal, including services provided by offshore exchanges. Services that offer trades, order matching, token issuance and derivatives for virtual currencies are strictly prohibited according to the PBOC.
The policy targets over-the-counter platforms like OKEx, which allow users in China to exchange fiat currencies for crypto tokens. An OKEx spokesman told CNBC that the company is reviewing the news and will inform CNBC as soon as it has decided on the next steps.
Lesperance claims some of his clients are also concerned about their safety.
“They are personally concerned about themselves as they suspect that the Chinese government is aware of their past crypto activities and they do not want to become the next Jack Ma as the goal of ‘shared prosperity’,” said Lesperance, that has helped customers emigrate to avoid taxes amid an increasing crackdown on cryptocurrencies in the US
Even so, it is common for the authoritarian state to crack down on digital currencies.
In 2013, the country ordered third-party vendors to stop using Bitcoin. The Chinese authorities stopped selling tokens in 2017 and promised to target crypto exchanges in 2019 as well. And earlier this year, China’s teardown of its crypto mining industry resulted in half of the global Bitcoin network going dark for a few months.
“Today’s announcement isn’t exactly new and it’s not a change in policy,” said Boaz Sobrado, a London-based fintech data analyst.
But this time around, 10 authorities are involved in the crypto announcement, including key departments like the Supreme People’s Court, the Supreme People’s Prosecutor’s Office and the Ministry of Public Security, to demonstrate greater unity among the country’s top executives. The state foreign exchange administration also participated, which could be a sign that enforcement in this area may increase.
Signs of coordination
There are other signs of early government coordination in China. The PBOC document was first announced on September 15th, and a document banning all crypto mining by China’s National Development and Reform Commission was released on September 3rd. Both were posted on official government platforms on Friday, suggesting collaboration between all participating authorities.
And unlike previous government statements that refer to cryptos under the same umbrella language, this document specifically names Bitcoin, Ethereum and Tether as stablecoins begin to enter the lexicon of regulators in China.
Mark Peikin, CEO of Bespoke Growth Partners, believes this is the beginning of widespread, short-term pressures on the price of Bitcoin and other cryptocurrencies, and that “the risks Chinese investors face are having a significant spillover effect resulting in an instant risk-off trade “. in the US crypto market. “
“Chinese investors, many of whom have continued to give the cold shoulder to the Chinese government’s recent and largest crackdown on cryptocurrency trading in recent months, may no longer remain belligerent,” Peikin told CNBC.
“Chinese investors have so far largely circumvented the ban by decoupling transactions – using domestic OTC platforms or, more recently, increasingly offshore outlets to reach an agreement on the trading price, and then using banks or fintech platforms to Yuan to be transferred when processing, “said Peikin.
Given that the PBOC has improved its crypto transaction monitoring capabilities – and the recent order that fintech companies, including Ant Group, not offer crypto-related services – Peikin said this workaround used by Chinese investors is becoming one narrowing tunnel will be.
The PBOC’s statement on Friday complements other news from China this week that has shaken crypto markets. A liquidity crisis at property developer Evergrande raised concerns about a growing real estate bubble in China. This fear spread throughout the global economy, sending the price of many cryptocurrencies into the red.
However, not everyone is convinced that this downward pressure on the crypto market will last.
Sobrado believes the market is overreacting to Friday’s PBOC announcement as much of the exchange volume in China is decentralized and peer-to-peer – increasingly the most meaningful metric for cryptocurrency adoption. While the exchange of P2P tokens doesn’t escape government scrutiny, Sobrado said these crypto exchanges are harder to track down.
Lesperance also points out that Friday’s news could actually bolster the business case for cryptos as an asset class as it provides a hedge against sovereign risk.
Ultimately, the biggest question is whether this latest guideline from Beijing has teeth. “The running gag in crypto is that China has banned crypto hundreds of times,” Sobrado said. “I would bet that people in China will be trading bitcoin in a year.”