China Bans Bitcoin, Again - Mitchell Dong
Since the invention of bitcoin, China and bitcoin have had a tumultuous relationship. Their goals are fundamentally at odds with one another: Bitcoin represents a decentralized community of libertarians while the Chinese government desires to command and control everything from the center. The Chinese government’s ban on cryptocurrencies is a natural and continuing reaction to this basic conflict between the Yin and the Yang.
The original conflict started with bitcoin being a way for Chinese citizens to by-pass the state’s capital controls. Bitcoin allowed people to move assets outside of China undetectable by Chinese authorities. The majority of this loophole has been closed, but China has had to keep banning bitcoin until its capital controls are fully lifted, which is unlikely in the near future.
As bitcoin prices soared, it represented a means of financial speculation and gambling, which in the eyes of the Chinese government is dangerous, because if people lose money, it can cause mass social unrest. Thus, China forced its domestic bitcoin exchanges to close or move out of China in 2016.
As bitcoin prices continued to rise, it attracted con artists, swindlers and crooks. Bitcoin has been used by fraudsters in China and globally to promote Ponzi schemes and other shady programs to defraud innocent people. Further, bitcoin and other cryptocurrencies were used as means to launder dirty money and for illicit activities by bad actors. The Chinese government has cracked down and required anti-money laundering procedures by companies which trade and handle cryptocurrencies. They also banned its traditional banks from providing services to crypto companies.
Fundamentally, bitcoin has become very popular in China because it’s a way people can make fast money, compared to the other limited investment options available to normal Chinese citizens. Generally speaking, bitcoin’s success is due to the problems and inefficiencies of the current fiat system, including outdated government and bank practices .
Bitcoin is also at odds with China’s current attempt to modernize and digitize its currency system. The government has proposed a Central Bank Digital Currency (CBDC) called the Digital Currency Electronic Payment (DCEP). Its nickname is the “Digital Yuan” or the “eRMB,” which is a digital form of its local currency to be issued as an alternative to paper money to its citizens and banks.. Bitcoin would be a competitor to the government issued digital currency, thus a further ban of crypto currencies is a logical move by the Chinese government.
The issue for the Chinese government is that you can keep bitcoin out of China, but you can’t keep bitcoin out of the Chinese people. The genie is out of the bottle: once bitcoin is in the minds of one billion Chinese; you can’t erase their memories, their fear of missing out, and their innate penchant for gambling. Unfortunately for the government, the Chinese know the financial opportunity is compelling and irresistible.
The most recent ban by the Chinese government is focused on bitcoin mining, which is a very energy intensive process. China has pledged to become carbon neutral by 2060. To move towards this environmental goal, it banned bitcoin mining because it uses dirty coal fired power. Their next step is to ban bitcoin mining altogether. Bitcoin uses a lot of the clean, excess hydro power in Sichuan Province. The government stands with the idea that the current excess hydro can be utilized in other more beneficial ways.
At the Consensus Conference in May 2021, Bobby Lee, former CEO and founder of BTC China recounted the history of the Chinese government’s bans against bitcoin. He puts the recent pronouncements in historical context. Presented here is his chronological summary:
Dec 5, 2013- China Bans Bitcoin (first ban):
Document №289
Bitcoin (BTC) price: $1045
Issued by:
- PBOC. Peoples Bank of China
- CBRC. China Banking and Insurance Regulatory Commission
- MIIT. Ministry of Industry and Information Technology
- CSRC. China Securities Regulatory Commission
- CIRC. China Insurance Regulatory Commission
As Bitcoin first rallied above $1000, China issued the “Notice on Protection Against Related Risk.” This defined Bitcoin as a virtual good, legal for people to own and trade, and specified that Bitcoin does not possess the same legal status as currency. It stated that Bitcoin should not circulate in the market as a currency.
January 2017- Inspection of Bitcoin Exchanges in China:
BTC price: $800- 900
Regulators inspect the big three bitcoin exchanges in China to obtain a deeper understanding of the platform’s operations and potential risks. This reiterated the need to operate within the confines of relevant legal statutes. The press releases on this inspection were written before the meetings and released immediately after the meetings which produced a chilling effect on the bitcoin market.
February 9, 2017- Big 3 Chinese exchanges suspend withdrawals of bitcoin and Litecoin:
BTC price: $994
The exchanges published notices to temporarily suspend withdrawals based on the requirement that “Bitcoin exchanges cannot violate national anti-money laundering, foreign exchange management, payment settlement and other finance law regulations.” BTC price in China then dropped to a discount compared to the USD price of bitcoin.
May 31, 2017- Exchanges Resume Withdrawals:
BTC price: $2,286
August 31, 2017- “Risks of Initial Coin Offerings or ICOs”:
BTC price: $4,703
The National Internet Finance Association of China issued an article outlining the risks of ICOs which can disrupt the economic order of society.
September 4, 2017: the 9/4 Event:
BTC price: $4,236
China bans ICOs and Exchanges (seemingly out of nowhere). This was issued by 7 departments:
- PBOC. Peoples Bank of China
- CAC. Cyberspace Administration of China
- SAIC. State Administration for Industry and Commerce
- CBRC. China Banking and Insurance Regulatory Commission
- MIIT. Ministry of Industry and Information Technology
- CSRC. China Securities Regulatory Commission
- CIRC. China Insurance Regulatory Commission
The public was given a notification regarding protection against finance risk of token issuance, claiming that any individual or organization was prohibited from engaging in activities to finance token issuance.
All token finance trading platforms were prohibited from providing exchange services between virtual currencies, buy and sell tokens or virtual currencies as central counterparties, as well as providing pricing.
September 15, 2017- Exchanges to Shut Down:
BTC price: $3,638
All three Chinese exchanges announce a shut down by the end of Oct 2017: the big hammer.
Regulations required the exchanges to issue public notices to specify the exact time of termination for all virtual currency exchange activities and to announce the immediate suspension of new user regulations.
BTC prices then, of course, crash.
August 24, 2018- “Reminder About ICO and Derivatives”:
BTC price: $6,720
Issued by:
- PBOC. Peoples Bank of China
- CBRC. China Banking and Insurance Regulatory Commission
- MIIT. Ministry of Industry and Information Technology
- CSRC. China Securities Regulatory Commission
- CIRC. China Insurance Regulatory Commission
Regulators issued the “Reminder on Preventing Illegal Fundraising.” This outlined risks in the name of virtual currency and blockchain, which clearly pointed out that fundraising methods such an ICO, IFO, IEO or IMO are all illegal financing activities under the banner of the sharing economy.
Jun 28, 2019- (Another) Reminder and Warning:
BTC Price: $12,407
Issued by :
- Beijing Internet Finance Industry Association
The “Reminder on Continued Vigilance on the Risks of Investing in the Virtual Currency Market” was issued.
If someone was found to be using digital currency or blockchain, the general public was now encouraged to report illegal financing activities carried out under the guise of financial innovation to relevant financial regulatory agencies.
May 18, 2021- China Bans Bitcoin Again:
BTC Price: $42,909
Issued by:
- CIFA. China Internet Finance Association
- CBA. China Banking Association
- CIPC. China Payment and Clearing Association
The “Announcement on Preventing the Risk of Hype in Virtual Currency Transactions.” Merely another reminder of Document #289 and the 9/4 Event for institutions to not offer any crypto related services, this made it more difficult for investors and miners in China to buy or sell cryptocurrencies using various payment channels.
May 22, 2021- China Bans Bitcoin Mining and Trading:
BTC Price: $37,534
Issued by:
- Financial Committee of the State Council
Strategically announced by a Vice Premier, The Financial Committee of the State Council put forth an effort to strengthen the supervision of financial activities related to Bitcoin mining and trading on various exchanges. Again, this ban simply re-emphasized enforcement.
So, what is the future for bitcoin in China?
If these patterns continue, and BTC prices keep escalating, China will only continue to ban Bitcoin again and again.
But what more can China really do to ban Bitcoin? Isn’t everything already banned?
I suppose we will just have to wait to see two things: how creative Chinese bureaucrats and politicians can get to formulate more bitcoin bans and how creative the Chinese citizens and businessmen will become in avoiding the government prohibitions.
