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2020 China Crypto Regulation in Review

The last 12 months have seen tremendous changes take place in the cryptocurrency sphere. And in this year, China seems to show some tolerance to the crypto industry with compliant bitcoin mining operations being supported by some local governments in the country.

This year, the Chinese government has taken tight measures to crack down on telecom fraud and gambling, leading to an avalanche of OTC transactions and a large number of ordinary investors’ cards freezes. Executives of major crypto exchanges OKEx and Huobi were taken away by local police later the year…

Crypto exchanges

In February, the once enormous crypto exchange Fcoin was suddenly shut down with $130 million of investor funds gone.

In October, the founder of major crypto exchange OKEx was taken away by local police as part of a fraud investigation. Cryptocurrency withdrawals on the platform were all suspended and resumed one month later.

Later in November, rumors went around that one of Huobi’s senior executives had been arrested, and the founder of well-known project GXC was charged with the crime of opening a casino.

Apart from that, there have been a number of smaller crypto exchanges trapped in troubles, such as ZB, DragonEx, TokenBetter, Livecoin…

These black swan incidents have made investors realized the risks of centralized exchanges.

Data shows that bitcoin holdings on exchanges have been increasing since 2018 when the market turned bearish. One big change this year has been the sharp decline in the aggregated BTC exchange balance, by about 20% since February.

The large crypto assets outflow from exchanges, on the one hand, shows that people pay more and more attention to their asset safety. On the other hand, more people see cryptocurrencies as long-term investments rather than short-term speculative trades. That’s how the structure of the market has changed.

OTC traders

As local police investigate illicit activities, thousands of cryptocurrency over-the-counter merchants and their clients have been affected, leading to a large amount of crypto traders’  bank accounts frozen.

Some of the higher-up executives from one of its most popular trading firms were also taken by police into questioning, including the country’s biggest bitcoin OTC dealer Zhao Dong.

As there’s a growing trend of using blockchain network to transfer high-risk capital out of China, under such circumstances, police are catching up on their knowledge of blockchain and start to use on-chain analysis to trace blockchain assets.

Plustoken

Plustoken, one of the largest cryptocurrency scams, has drawn much attention in 2020 considering the size of the scam.

The notorious scam was busted in 2019, while it was until late 2020 that a Chinese court sentenced ringleaders of the multinational cryptocurrency-based pyramid schemes to up to 11 years in prison after they defrauded investors out of 14.8 billion yuan ($2.25 billion) worth of cryptocurrencies.

The billions of dollar worth of cryptocurrencies were all confiscated and handed over to the state treasury instead of returning it to victims in accordance with relevant laws.

Digital yuan DCEP

This April, China’s central bank backed digital currency DC/EP was tested in Agricultural Bank, which caused quite a stir among the crypto investors who mistook it as major good news for the industry.

With the further promotion of the DC/EP pilot program, the central bank released the Law of the People’s Bank of China of the People’s Republic of China (Draft Revision for Public Comments) in October to solicit public comments.

The draft emphasized a standpoint that has been reiterated many times – that China’s legal fiat can only be the Renminbi, and that any currency that tries to shake and replace it will not be tolerated.

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