On Tuesday, May 18, the Chinese government reissued restrictions barring financial institutions and payment companies from providing services related to virtual currency, or cryptocurrency. Cryptocurrency, such as bitcoin, is a decentralized digital currency that's gained popularity over the past few years as a potential alternative to paper currency.
Since China reiterated currency restrictions, there has been some confusion online on what exactly that means for crypto-owners.
THE QUESTION
Did China completely ban virtual currency?
THE SOURCES
- Merav Ozair, PhD, FinTech faculty member, Rutgers Business School
- Winston Ma, CFA Esq., adjunct professor at New York University School of Law, author of The Digital War
- China Securities Regulatory Commission (CSRC)
- Beijing Local Financial Supervision and Administration Bureau
THE ANSWER
The Chinese government has barred Chinese citizens from trading in virtual currency, and financial institutions and payment companies can not accept any cryptocurrency while in the country. But, it’s unclear how it’s regulated if a citizen travels outside the country to trade.
WHAT WE FOUND
Chinese citizens have been barred from trading in virtual currencies for years, Merav Ozair, PhD, told VERIFY.
“I always say, China is a very interesting place in the world when it comes to everything to do with cryptocurrency and blockchain. On the one hand, you see them really investing a lot of money and time and effort and minds into blockchain development,” Ozair said.
“When it comes to technology they are very much ahead of the curve. It is a very interesting place when you think about how they see the blockchain space - technology yes, trading no,” she added. Most major virtual mining operations originated from China, she said, despite China first prohibiting financial transactions in bitcoin in 2013.
A CSRC “Notice on preventing bitcoin risks” states that because bitcoin has no centralized issuer, no limited total amount, unrestricted use by geographic area and anonymity, Chinese regulatory authorities concluded it does not have the same legal status as currency, and it “cannot and should not be used as currency in the market.”
In May, the China Internet Finance Association reiterated their terms, stating: “The price of virtual currency has soared and plummeted recently, and the virtual currency trading speculation has rebounded, seriously infringing on the safety of the people's property and disrupting the normal economic and financial order.”
According to Coinbase, Bitcoin’s value fell roughly 34% in May.
China has been testing its own form of digital currency, the digital yuan. On June 1, the Beijing Local Financial Supervision and Administration announced it would give away 40 million digital yuan in its latest currency test. China reportedly hopes to launch the form of currency ahead of the 2022 Winter Olympics in Beijing.
Winston Ma told VERIFY cryptocurrencies are not yet well-defined in China’s legal system. China has banned crypto exchanges and initial coin offerings but has not barred individuals from holding cryptocurrencies, Ma said. The May announcement launched a new crackdown on mining operations, in addition to restating the ban on crypto as a whole.
“The latest crackdown comes from China State Council's Financial Stability Committee, led by Vice Premier Liu He. That is the highest level financial regulator of China, and it vowed to crack down on the cryptocurrency's mining and trading activities. As such, new regulations are expected to come from the ministries to better define and regulate Chinese citizens’ crypto mining, holding, and trading,” Ma said.
Ozair said as a result of the new regulations against mining, she expects mining operations to move out of China in the near future. Short-term implications include the hashrate, or the speed of mining, to decline and this could cause the markets to fluctuate.
Ma told VERIFY: “In addition to the issue of market fluctuations, carbon neutrality is also a major consideration, because of the electricity-intensive process to create bitcoins and cryptos. Recent research by Chinese scientists noted that this emission output in China would exceed the total annualized greenhouse gas emission output of some smaller countries, such as the Czech Republic and Qatar.”
Ozair said the industry is constantly evolving, making regulations tricky.
“The regulators worldwide are already thinking widely about how to treat cryptocurrency. How can you trade it? What kind of regulations should we put in place? It’s evolving. I’m sure it’ll take some time. Technology is racing and regulators are slowly moving like a snail,” Ozair said.
China isn’t the only country to regulate virtual currency. In April, the Central Bank of the Republic of Turkey announced it would ban the use of cryptocurrencies as payments.
More from VERIFY: No, the US government can’t shut down cryptocurrency
VERIFY
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