Despite Crackdowns, Cryptocurrency Projects Still Look Towards China
The clampdown on cryptocurrency related businesses in China has continued for a couple of years already. The recent reports of cryptocurrency miners having their cards frozen, and the OKEx crackdown are just two of similar incidents that have become common within the borders of China.
As far back as 2017, during the most volatile era that the cryptocurrency market has ever experienced, cryptocurrency crackdown in China played a big role in influencing market fluctuations. Beyond the markets, the working atmosphere created by these restrictions in China led to the exodus of many startups whose major hubs were originally located in the far east Asian nation.
The Crypto Reality In China
Despite these challenges and the outright restrictions by the Chinese government on crypto-related businesses as it seems, China still remains at the forefront among the crypto-inclined regions of the world. How this is even possible remains a subject of key interest among the majority of cryptocurrency users.
Perhaps, things may be actually different from what it seems from the outside. Based on popular information and what usually trends in the news, especially when market prices are affected, not every detail may be popular. For instance, an average cryptocurrency user from across the globe could easily assume that China isn’t the best place to live if you want to be a crypto user. On the contrary, that is not particularly true. For instance, in November 2019, the Chinese government removed Bitcoin mining from the “Unwanted Industries” list. This is one of several moves by the Chinese government that encourages innovation, and also why tech startups continue to look towards that direction.
To explain the quagmire about the assumed strict approach towards crypto by China, Dana L. Coe, founder of BitLox summarizes it this way;
The Chinese government’s stringent regulation of cryptocurrencies stems from a strict stance against ponzi schemes and private investment clubs.
Coe explains that such schemes rely on the general public’s having heard of extreme growth in the crypto industry without actually knowing much about how it works. That makes them easy targets for unscrupulous actors. Now, the government has seen many such schemes, and regardless of if they catch the scammers, the people involved invariably lose their money and then complain to the government about the loss. He notes that on a large scale (and some of these schemes can become large scale), this would lead to social unrest, which is anathema to the Chinese State.
Why Startups Are Still Heading To China
For obvious reasons such as market size and openness to innovative technology, it is not surprising that startups find their way to China. Apparently, while the genuine projects make entry into the marketplace, bad players also find ways of smuggling their products into the same market. Therefore, from Coe’s analysis above, it is obvious that most of the stringent policies from the Chinese government is geared towards citizen protection.
Focusing on the attraction between crypto startups and China, Coe notes that startups in the crypto space on the other hand are encouraged. “For one, since they are registered entities, they are more easily tracked and also supported by the government, he says. “As attractors for talent and investment, they are a good thing for most local governments”.
According to Coe, in China, almost all policy directives on actual use of cryptocurrency are promulgated by Beijing. Even the digital Yuan which was recently rolled out in Shenzhen is directly administered from Beijing. This makes for less opportunities in the financial blockchain space for local authorities to support and attract talent and projects, as they must defer to the national policy.
China is a tech hub, and has grown into a global leader both in technology and other industrial developmental areas. The attraction of startups and cryptocurrency projects towards this region is born out of market viability and adoption tendencies. While in the outer world, it looks like cryptocurrency projects do not appeal to the Chinese government, in reality, there is evidence that the same government encourages and promotes emerging technologies, which includes cryptocurrency. A typical example is the leadership role that China is playing towards the actualization of CBDCs.
In the long run, it could be explained, based on the opinion of Coe that China, rather than oppose cryptocurrency and associated projects, is actually making efforts to protect the cryptocurrency industry. Perhaps, someday soon, the reality of these efforts will be obvious and both the government and genuine projects that have been caught in the crossfire will appreciate the benefits of what we are seeing today.