After the global inauguration of cryptocurrency, many countries and companies commenced its usage worldwide including platforms like bitcoin. China is among the first countries that accepted and adapted digital currencies and became the highest generating revenue country globally in digital exchanges and mining centers in the world yet, its utilization started to shrink over time.
The reasoning for this declination is so overpowering that the international and domestic profitable funds increasing seemed diminutive in front of it. The reason why the usage of cryptocurrency dwindled after its immense popularity and admiration in the Chinese financial market is due to its devaluation of the national fiat currency.
It started replacing the fiat currency, which caused a heavy shift and a decrease in the economic welfare of the country, especially in the domestic financial market. Therefore, the Chinese government finally banned using cryptocurrency trades and dealings on the whole to enrich national economic welfare and prosperity and to preserve capital.
Here is a brief background on cryptocurrency and China.
China and Cryptocurrency: The Background
China accommodated the first operations of cryptocurrency between 2010-2011s after its introduction and publication in 2009. After the initial accommodation and allowance, cryptocurrency ascended to its peak in China over the years till 2018.
The first cryptocurrency, Bitcoin BTC trade started in 2011. Afterward, the prominence of these digital currencies’ profit offerings was realized, and later on, the Chinese market regulated many extensive cryptocurrency mining operations.
China did not only invest in the exchanges of cryptocurrencies, but it also initiated regulating the world’s most extensive cryptocurrency mining operations and built large-scale industries named Bitmain. Since to operate these industries, high consumption of electricity was mandatory. And so, it is a fact that because of the relatively inexpensive rate of electricity, the regulation of these mining operations was easier in China. At that time, China was in charge of most global mining operations.
In 2013, the Chinese search-engine state Baidu started to accept Bitcoins, and later Taobao, the world’s biggest e-commerce company, also added cryptocurrency to their payment methods. The value of the cryptocurrency ascended to the highest skies. Their adaption attracted cryptocurrency and encouraged other companies in China to embrace cryptocurrency as their central element for trading. But, in early December 2013, the five central Chinese banks, Baidu and Taobao, stopped their trading and dealing with cryptocurrency leading to the value fall of the cryptocurrency by 20%.
It is an economic ambition of the Chinese government to preserve capital in the country and increase the value of its currency in the global financial market. The government permits only $50,000 of international trade annually. The government passed the law to keep traditional Chinese money in a healthy state. But the high usage of digital currency bypassed the conventional currency and the Chinese ambition.
Therefore, the Chinese government recognized and declared that the high usage of cryptocurrency was diminishing the value of its fiat currency and gradually substituting it. Therefore, in 2017, after a high consumption and trading of cryptocurrency, the government banned the primary Bitcoin offerings and cryptocurrency businesses domestically and finally banned them.
Even after the ban, China was the highest generating revenue country in cryptocurrency trading globally. Companies like Binance, Huobi, and OKcoin are prominent contributors to cryptocurrency trading. The government identified that the ban on the coin offering was operative because only 1% was exchanged in the cryptocurrency trade.
The law viewed cryptocurrency as a virtual asset, not a functioning currency. Therefore, in 2013, the government issued a document that suggested the idea of cryptocurrency as a commodity and that the citizens using cryptocurrency must use it at their own risk.
The cryptocurrency mining operations and international trade prospered as the years passed. In 2020, the monthly percentage of cryptocurrency mining was 67%, governed by China in the global market. But soon, the rates fell after the state council stopped other mining operations in China. The value, which was 67%- now dropped to 55% share of China in the global cryptocurrency market until in June 2021, all mining operations were fully diminished.
The risk of capital flight from the Chinese market is a priority and significant for the Chinese government. Hence, the government ran a campaign named ‘common proprosperit and enforced the regulations and ban on cryptocurrency to save its domestic market and promote its traditional and conventional trade and currency.
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