Throughout the past month, traders and investors in China have criticized the Chinese government's sudden crackdown on local cryptocurrency exchanges and trading activities.
What happened?
In September, the Chinese government, People’s Bank of China (PBoC), and local financial authorities imposed a nationwide ban on cryptocurrency trading platforms, shutting down some of the global cryptocurrency exchange market’s largest trading platforms including OKCoin, Huobi, and BTCC.
The motive behind the Chinese government’s closure of local cryptocurrency exchanges has not been clarified, but several researchers for the PBoC have stated that the country’s central bank considers Bitcoin and other cryptocurrencies as threats to the Chinese monetary system.
Supervision strategy?
Last month, in an interview with the PBoC’s state-owned finance news publication Sina, Huang Zhen, a researcher at Central University of Finance and Economics and PBoC, stated:
“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. The central bank has set up a research group and a digital money research institute to explore the digitization of sovereign money. After this round of virtual money markets supervision, we expect under the auspices of the Chinese central bank to launch our own sovereign digital currency as soon as possible to help maintain China's leadership in the development of global digital finance.”
Logically, if the Chinese government intends to go ahead with the strategy of issuing a state-controlled digital currency and considers Bitcoin as a threat to its financial system, the motive behind the government in restricting trading activities around Bitcoin and cryptocurrencies is quite clear.
Or no strategy at all?
But, lately, the Chinese government has expressed its optimism towards releasing a licensing program for cryptocurrency exchanges to prevent cryptocurrency transactions flowing into underground economies and black markets.
Such a sudden shift in stance towards Bitcoin and the cryptocurrency market has provoked consternation amongst traders and investors within the Chinese cryptocurrency community.
Zhang Yanhua, a major Bitcoin investor and a founder of an investment fund focused in cryptocurrencies, stated:
"The authorities don't understand anything about Bitcoin!”
Sun Minjie, another investor who has recently purchased a large amount of Bitcoin as a vital part of its portfolio, told AFP that the Chinese cryptocurrency community and himself do not expect much from the Chinese government any longer:
"I expect nothing from the government... but the fate of Bitcoin does not depend on the Chinese authorities.”
David Yermack, finance professor at New York University, shared a similar sentiment to most investors and traders in China, emphasizing that the Chinese government does consider Bitcoin as a threat to its financial system to a certain extent. But, such fear towards Bitcoin and its potential in the global finance sector should be considered as a positive indicator for long-term growth. Yermack said:
"They didn't ban Bitcoin, but banned exchanges from trading for speculative purposes. It has a lot to do with problems in the Chinese financial system, that they're worried about this as a competitive threat in some way."