Image credit: Chinese flag via Pixabay
In recent years the Chinese government has vowed to strengthen its crackdown on cryptocurrencies by forcing banks and financial institutions to report to the authorities about any potential cryptocurrency-related transaction.
Consequently, traders have moved their funds to Hong Kong and other markets like Japan and South Korea. But, because foreigners are no longer allowed to trade cryptocurrencies in the South Korean market, Chinese investors are now using exchanges in Hong Kong.
While Chinese governments can attempt to restrict funds moving from Chinese banks directly to Hong Kong-based over-the-counter (OTC) markets, it cannot outright ban local investors from moving their funds to the Hong Kong market and trading cryptocurrencies using local bank accounts issued by Hong Kong banks.
Most recently, as a part of a larger initiative to lessen cryptocurrency activities within China, the country’s central bank stated that the government plans to restrict access to cryptocurrency-related websites using its firewall, which already blocks local citizens and residents from accessing Western sites including Google, Wikipedia, Facebook, and YouTube.
Xinhua, a state-owned media outlet operated by the People’s Bank of China, the country’s central bank, reported “the central bank will tighten regulation on domestic investors’ participation in overseas transactions of initial coin offerings and virtual currency as risks are still high in the sector,” adding that some of the websites the government may ban include wallet platforms and market data providers.
In an interview with WSJ, Ron Cao, a Chinese venture capital investor who funded local cryptocurrency exchanges prior to the most recent ban, said:
“The government is reacting so fast. That shows the strength of the government. It’s going to be more tight, that’s for sure.”
Previously, Huang Zhen, a PBoC researcher, admitted that bitcoin is a threat to the central bank of China and the global financial structure because it eliminates intermediaries and operates as a decentralized currency.
“The sovereign state is still the fundamental player in global politics and carries with it the characteristics of the world financial system. Cryptocurrencies and other virtual currencies attempt to challenge the sovereign state’s right to issue currency, requiring the nationalization of currency issuance. China has a clear understanding of digital forms of money, and is actively engaging in relevant work,” said Zhen.
PBoC and the rest of the Chinese government are continuing to solidify their stance against bitcoin and the cryptocurrency market, and intend to strictly restrict cryptocurrency trading within the country.
In the long-term, the Chinese government’s plans to make policies stricter will only accelerate the local market in Hong Kong as most of the exchanges that were founded in China have established themselves outside of the country. In addition to this, Huobi and OKCoin, formerly the two largest trading platforms in China, have already publicized their plans to expand into Japan and the South Korean market.