Main Points:
- Importance of cryptocurrencies for digital economy development, despite risks.
- Need for further research on international trends, especially U.S. policies.
- China’s 2021 cryptocurrency trading ban and its implications.
- U.S. bipartisan support for cryptocurrencies and Bitcoin ETFs.
- Despite the ban, China’s mining pools hold a significant share of Bitcoin’s hashrate.
The Importance of Cryptocurrencies in the Digital Economy
Former Chinese Vice Minister of Finance, Zhu Guangyao, has highlighted the critical role cryptocurrencies play in the development of the digital economy. During a roundtable at the Financial Economic Forum in Beijing, Zhu emphasized the necessity of recognizing the potential negative impacts of cryptocurrencies, including the risks they pose to capital markets. However, he also stressed the importance of studying international trends and adjusting policies accordingly. According to Zhu, understanding global policy changes, particularly those emerging from the U.S., is vital for the future growth of China’s digital economy.
The Impact of China’s Cryptocurrency Ban
In September 2021, Chinese authorities, including the People’s Bank of China and the Supreme People’s Court, issued a ban on all cryptocurrency trading activities within the country. This ban effectively made any services offered by foreign cryptocurrency exchanges to Chinese residents illegal. Despite the strict regulatory environment, many Chinese investors have found ways to continue trading cryptocurrencies using VPNs, circumventing the ban.
The ban had a significant impact on the global cryptocurrency market, causing an initial drop in trading volumes and prices. However, it has also pushed many Chinese traders to decentralized exchanges and other markets where they can avoid government oversight. As a result, while the official stance remains restrictive, the market continues to thrive in the shadows, with investors finding alternative ways to engage in cryptocurrency trading.
U.S. Policies and Their Influence on Cryptocurrencies
Zhu also pointed out that significant changes are taking place in how the U.S. approaches cryptocurrency regulation. The Republican party, in particular, has shown strong support for cryptocurrencies as part of its political platform, which is expected to influence future policies. The approval of a Bitcoin ETF earlier this year in the U.S. is seen as a fundamental shift in how the country views cryptocurrencies, marking a critical milestone for global crypto markets. Zhu emphasized the need for China to study these developments closely as part of its research into international cryptocurrency policies.
China’s Continued Influence on Bitcoin Mining
Despite the official ban, China remains a major player in the global cryptocurrency mining industry. According to Ki Young Ju, CEO of CryptoQuant, Chinese mining pools continue to dominate Bitcoin’s hashrate, contributing about 55% of the total hashrate. This is a significant figure, considering the strict regulations against cryptocurrencies within China. Ki’s observations suggest that, despite the ban, the influence of Chinese entities on the global crypto market, particularly in Bitcoin mining, remains substantial.
The University of Cambridge’s research also supports this notion, estimating that Chinese mining pools account for about 21.1% of the global Bitcoin hashrate. However, Ki’s higher estimate reflects the opaque nature of mining activities in China, with many operations potentially operating under the radar.
Risks and Opportunities in the Post-Ban Chinese Crypto Market
While China’s stance on cryptocurrencies remains rigid, opportunities and risks persist in the market. The resilience of Chinese investors and miners, combined with the evolving international regulatory landscape, particularly in the U.S., provides a complex but dynamic environment for cryptocurrencies. As global policy changes continue to unfold, China’s digital economy may need to adapt to stay competitive in this rapidly developing sector.
