As China Intensifies Cryptocurrency Crackdown, Industry Experts Say India May Gain From This

by Bhaswati Guha Majumder - Sep 25, 2021 05:40 PM +05:30 IST
As China Intensifies Cryptocurrency Crackdown, Industry Experts Say India   May Gain From ThisBitcoin
Snapshot
  • In China, 10 agencies, including the central bank, finance, securities and foreign exchange authorities, have pledged to work together to combat "illegal" cryptocurrency activities.

Chinese regulators have intensified the country’s crackdown on cryptocurrencies on 24 September, imposing a blanket ban on all crypto transactions and mining, putting pressure on bitcoin and other major coins as well as crypto and blockchain-related companies.

While it sounds like bad news for the crypto market, industry experts believe that this could boost India’s crypto pace.

In China, 10 agencies, including the central bank, finance, securities and foreign exchange authorities, have pledged to work together to combat "illegal" cryptocurrency activities.

This is the first time Beijing-based regulators have banded together to expressly prohibit all cryptocurrency-related activity.

The People's Bank of China (PBOC), China's central bank, warned it was illegal to assist cryptocurrency trading and that those who did so, even those working for offshore platforms from within China, would be severely punished.

The National Development and Reform Council (NDRC) announced a statewide crackdown on cryptocurrency mining as part of its effort to phase out the industry entirely.

In China, cryptocurrencies are not recognised as legal cash, and the financial system does not accept or provide services related to them.

China implemented similar bans in 2013 and 2017 prohibiting financial institutions and payment businesses from offering services linked to cryptocurrency transactions.

Chinese government designated bitcoin as a virtual commodity in 2013 and stated that individuals were free to trade it online. But banks and payment businesses were prohibited from providing bitcoin-related services by financial regulators, notably the PBOC, later that year.

Authorities outlawed initial coin offerings (ICOs) in 2017 September to protect investors and reduce financial risks. As reported, cryptocurrency trading platforms were also prohibited from transferring legal cash into cryptocurrencies and vice versa under the ICO rules.

Financial firms and payment organisations were also prohibited from providing services for ICOs and cryptocurrencies, including account openings, registration, trading, clearing, and liquidation, under the rules.

As a result, according to the PBOC, 88 virtual currency trading sites and 85 initial coin offering (ICO) platforms had exited the market by July 2018. Additionally, most such trading platforms shut down, with many migrating offshore.

Beijing's resolve to smothering the Chinese crypto market is underscored by the latest statement, which is the most thorough and expansive yet from the country's primary regulators.

Winston Ma, NYU Law School adjunct professor said: "In the history of crypto market regulation in China, this is the most direct, most comprehensive regulatory framework involving the largest number of ministries."

However, the latest decision comes at a time when governments from Asia to the United States are concerned that privately-run extremely volatile digital currencies could undermine their control of the financial and monetary systems, create systemic risk, promote financial crime, and harm investors.

Authorities are also concerned that "mining," the energy-intensive computing process used to create bitcoin and other tokens, is compromising global environmental goals.

Chinese government agencies have often expressed concern that cryptocurrency speculation could jeopardise the country's economic and financial order, which is a primary priority for Beijing. According to analysts, China regards cryptocurrencies as a danger to its sovereign digital yuan, which is now in a pilot phase.

Despite concerns related to virtual currencies, American regulators have been closely studying the hazards of digital assets, as they have also stated that cryptocurrencies provide opportunities, such as promoting financial inclusiveness.

After Chinese regulators released the latest statement, cryptocurrencies dipped on 24 September. But the drop was not as severe as the one experienced in May, when China's State Council, or cabinet, threatened to ban bitcoin mining.

Ganesh Viswanath Natraj, Assistant Professor of Finance at Warwick Business School said: “While retail traders in China may no longer be able to access online exchange platforms that are now illegal, crypto funds may be able to move management of their funds offshore.”

Opportunity For India

According to industry leaders, China's prohibition on trading and mining cryptocurrencies is likely to promote India's crypto space. They also suggested that the country should provide good policies to integrate this new technology.

As per a report, Kapil Rathi, founder of an IT service management company called CrossTower, said that India has a big potential to benefit from China's crypto crackdown, which is the result of the selection — “control over innovation”.

According to him: “China forcing out such innovation and advancement is to India's benefit, and the country should now embrace this new technology with open arms. Crypto can make India a global leader in this new technology."

Nischal Shetty, CEO of WazirX, a company that allows people to buy, sell and trade digital currencies using their platform, said that digital currencies have a lot of potentials to expand opportunities and contribute to India’s vision of a $5 trillion economy.

“Countries around the world are working towards crypto positive regulations and I’m confident that India will not take a regressive approach that could push us behind by decades," Shetty added.

He also stated that the news about China’s ban on crypto trading and mining has caused a dip in the values of virtual currencies around the world, including in India, as is typical of any news that causes fear, uncertainty or doubt. But Shetty said: “I [however] don’t see any long-term impact of this on the Indian crypto ecosystem.”

According to Sathvik Vishwanath, the co-founder and CEO of a cryptocurrency trading company Unocoin, there is a lot for India to learn from how this plays out in China.

He noted that “it is sad to see that about 20 per cent of the world's population won't have access to free transactions on the internet. On the other side, the crypto being completely on the internet, it would be next to impossible for China to enforce such a ban".

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