China seems to have its iron grip on Bitcoin. The blockchain technology that made headlines everyday reacted with a dip in price, the ban is on but how long will it remain?
Many economists compare Bitcoin to the Dutch tulipmania of the 1600s, where the prices of tulips were so high you could afford to buy an entire house, furnished and re-painted, with a single tulip. The cryptocurrency has become such a topic of controversy and debate that the word “bubble” has become almost synonymous with it.
China, the powerhouse of cryptocurrencies, dropped the first bomb when it declared a ban on Initial Coin Offerings (ICOs). To the surprise of many people, they came out guns blazing again with another announcement, stating a ban on all Peer-to-Peer (P2P) and Over-the-Counter (OTC) exchanges.
Many large traders and miners though could smell the ban coming for a long time. China made its first step towards regulating Bitcoin after New Year’s of 2016 when it banned no-fee trading. Before that, the volume of BTC trading against Chinese currency (Renminbi) was 90%. In its prime – around November 2016 – approximately 172 Million Bitcoins were traded for Yuan! This saw a sharp drop only two months later because of the ban. Traders had moved to countries like Japan, utilizing their exchanges.
Understandably, most Bitcoin enthusiasts love to claim that the cryptocurrencies are the vendetta to large financial companies, and that’s why the ban is happening. Although a very powerful technology that blossomed inside the country, and, true, it has added a variety to the uniform methods of trading, it is nowhere near to becoming a threat to the biggest industry in China, let alone the world.
Most fintech researchers claim that the ban on Bitcoin is only temporary and that China is only looking to put a hold on it until regulations are placed, following the footsteps of Australia and Japan.
The ICO ban was very understandable. The issue with cryptocurrencies is that while a lot of people made money off of them, others began to abuse the power of cryptocurrency anonymity and coupled with poor education around the technology created scams and Ponzi schemes, and everyone and their grandmother began pouring money down the drain, in hopes of a high ROI. What they usually got was a disappointment. Some of these ICOs failed to return any product, let alone an investment, and some even ran away with the money.
China had issues left and right with these investments because it became such a trend to start an ICO. By their nature, ICOs are not something evil. The intent of people behind them and the confusion of how cryptos work in general caused enough pressure on the government for them to see it necessary to place a ban.
Now they are trying to untangle the headphones-in-the-pocket situation caused by all the Bitcoin trading, using brute force. The stress to please international agencies and the powerful communist party inside the country became the reason behind it. The government needed to show it still had control over the financial schemes that ran inside, while also sticking to their usual attitude towards innovations – which is almost always denial.
The ban is very serious, while it did not include a ban on possession or production of cryptocurrencies, going as far as monitoring VPNs and even Tor nodes for any illegal activities inside the country. The Great Firewall of China has deterred all the trading inside, proving a success to their agenda, but a failure in the international eyes when S&P Global ranked them one place lower.
With all eyes on China, Bitcoin trading still shows no signs of stopping and for now, they have placed a hold on a very powerful asset, the question is how are they going to proceed? Strict regulations are expected, but has the damage already been done? Most, if not all of the traders would expect to return their trades inside the country under optimal conditions. For now, it’s only a waiting game while Bitcoin prices still continue to rise, not cracking down under the seeming pressure.