China’s crypto ban could reveal CBDC’s digital yuan targets

Chinese regulatory authorities gave cryptocurrency yet another shock by banning all cryptocurrency transactions on September 24. The move came just as the market was starting to recover from the June government ban on cryptocurrency mining activities.

The fear, uncertainty and doubt (FUD) that resulted from the ban caused Bitcoin (BTC) to drop nearly 9% in five hours, from a swap of hands in the $ 45,000 range to a low of $ 41,142. Shortly after, Alibaba announced that it would ban all sales of cryptocurrency platforms and related accessories from October 8.

However, the flagship cryptocurrency has since recovered to trade above pre-ban levels of around $ 45,000. As of this writing, BTC was trading hands in the $ 47,300 range. This recovery could be based on two favorable developments: the Chairman of the Federal Reserve of the United States, Jerome Powell, mentioning that there is no intention to ban Bitcoin or cryptocurrencies in the United States and Iran’s lifting of its temporary ban on Bitcoin mining.

This is not the first time that BTC or the market as a whole has recovered from FUD caused by China. According to a Cointelegraph analysis, the cryptoverse has rebounded more than a dozen times after the Chinese crypto attacks. This instance marks another of those inevitable revivals.

In addition to the drop in the price of tokens as an immediate consequence of the ban, the long-term impact on crypto firms and investors in China is enormous. Huobi Global, the most widely used cryptocurrency exchange in China in terms of transaction volumes, immediately halted crypto trading for its Chinese investors in accordance with the regulator’s guidelines.

Additionally, the exchange introduced a plan for their users in China that ensures users can protect their assets before their accounts are closed permanently on December 3. Du Jun, co-founder of the Huobi Global cryptocurrency exchange, told Cointelegraph about it:

“Clients will be able to transfer their assets to other exchanges or portfolios in the coming months. If customers don’t or can’t see our latest ads, we’ll provide other means to protect customer assets and wait for them to be retired.

Unlike previous cases where China has cast a shadow over cryptocurrencies or announced ‘bans’, this time around, there doesn’t appear to be a gray area or loopholes for crypto companies to continue offering their services in the country.

The pattern of China

As is the case in many countries, China’s hostility to crypto appears to juxtapose the promotion of its own central bank digital currency (CBDC), the digital yuan.

Ariel Zetlin-Jones, associate professor of economics at the Tepper School of Business at Carnegie Mellon University, told Cointelegraph:

“China clearly wants to promote the digital Yuan. Removing its competition by banning crypto activities is one way to do it, so it seems reasonable to view this motivation as one of the justifications for their policies.

Kristin Boggiano, co-founder and president of cryptocurrency exchange CrossTower, told Cointelegraph: “China seems to be choosing to control innovation, and its actions indicate that crypto could be a threat to the digital yuan. , because much of the crypto is unlicensed.

The government has pushed its CBDC initiative in various provinces to the point that the new Xiaong’an area enabled the country’s first blockchain-based pay transaction in June of this year.

This shows immense conviction and commitment to the digital currency initiative, compared to other major economies where the talking point is still about the security and reliability of digital currencies. So, this move could certainly be an effort to curb the proliferation of “private” cryptocurrencies and push users in China to the digital yuan.

The loss of China, the gain of America?

Jun de Huobi further mentioned that since the exchange has expanded its footprint in various countries in recent years, activities outside of China already account for nearly 70% of the company’s entire portfolio.

In July, after a series of crackdowns against Bitcoin mining in China, the difficulty in mining Bitcoin was immediately affected, dropping by 30%. Zetlin-Jones said similar results are now emerging on the Ethereum blockchain, where the large Ether Mining Pools (ETH) in China are now offline. Zetlin-Jones continued:

“Reducing mining difficulties reduces entry costs for mining and creates opportunities for new entrants to mining. While I believe this could be beneficial in fostering decentralization in the mining sector, it is not clear that this is an opportunity for the United States in particular. “

Charles Allen, CEO of BTCS Inc. – a publicly traded company offering blockchain infrastructure – remains optimistic. He told Cointelegraph: “Blockchain technologies have the power to change the world the same way the internet has. Simply put, they are the future of finance and beyond.

Allen said that if China does not want to participate in development and innovation, it is 100% an opportunity for the United States in the long run.

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US Senator Pat Toomey agrees, writing on Twitter, “China’s authoritarian crackdown on crypto, including #Bitcoin, is a great opportunity for the United States. It’s also a reminder of our huge structural advantage over China.”

The opportunity for the United States and other major economies here is huge, as various sectors of crypto businesses, like trading and mining, have to relocate to China and thus would contribute to the surrounding economy with employment opportunities and a constant flow of capital.

Even though there is absolute clarity on the law for crypto business and services, individual investors and cryptocurrency holders are still unsure whether owning cryptocurrency is illegal. Boggiano claimed that while China-based investors cannot transact cryptocurrencies on the exchanges, OTC access to the crypto market remains relatively unchanged.