China, Hong Kong bitcoin holders scramble to protect their crypto assets
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A Bitcoin ATM in Hong Kong.
S3studio Some cryptocurrency holders from China and Hong Kong have been scrambling for a way of protecting their cryptocurrencies following China’s Friday announcement that it would be taking tougher steps in its crypto crackdown.| Getty Images
Some crypto holders in China and Hong Kong are scrambling to find a way to safeguard their bitcoin and other cryptocurrencies after China’s central bank published a new document on Friday spelling out tougher measures in its wider crypto crackdown, including souped-up systems to monitor crypto-related transactions.
Bitcoin was down as much as 6% and ether sunk as much as 10%, amid a wider sell-off early Friday, as investors digested the news.
“Since the announcement less than two hours ago, I have already received over a dozen messages – email, phone and encrypted app – from Chinese crypto holders looking for solutions on how to access and protect their crypto holdings in foreign exchanges and cold wallets,” David Lesperance, a Toronto-based attorney who specializes in relocating wealthy crypto-holders to other countries to save on taxes, told CNBC early Friday.
Lesperance explained that this move is meant to prevent holders legally from doing any business with their crypto assets. “Along with not being able to do anything with an extremely volatile asset, my suspicion is that like with Roosevelt and gold, the Chinese government will ‘offer’ them in the future to convert it to e-yuan at a fixed market price,” he said.
Lesperance said that he had been anticipating this since a long time as part of China’s efforts to limit any potential competitors to the new digital currency.
The People’s Bank of China said on its website Friday that all cryptocurrency-related transactions in China are illegal, including services provided by off-shore exchanges. Services offering trades, order matching, token issuance and derivatives for virtual currencies are all strictly prohibited, according to the PBOC.
Over-the-counter platforms such as OKEx that allow users to trade fiat currency for crypto tokens will be affected by the directive. CNBC was informed by an OKEx spokesperson that the company has been looking into the situation and would let CNBC know when they had decided what the next steps were.
Lesperance claimed that his clients also worry about safety.
“They are concerned about themselves personally, as they suspect that the Chinese government is well aware of their prior crypto activities, and they do not want to become the next Jack Ma, like ‘common prosperity’ target,” said Lesperance, who has helped clients to expatriate in order to avoid taxes, amid a rising crypto crackdown in the U.S.
That said, it’s common for the authoritarian state to lash out against digital currencies.
In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities put a stop to token sales in 2017 and pledged to continue to target crypto exchanges in 2019. And earlier this year, China’s takedown of its crypto mining industry led to half the bitcoin network going dark for a few months.
Boaz Sobrado in London, who is a fintech data analyst, said that today’s notice wasn’t new and didn’t represent a shift in policy.
This time the announcement of crypto involves ten agencies. These include key departments like the Supreme Court and Supreme Procuratorate. It is a sign of more unity between the top officials of the country. This could suggest that the enforcement efforts in this field might rise.
Signs of coordination
There are other signs of early government coordination in China. On Sept. 15, the PBOC document went public. A document that banned all cryptocurrency mining was issued by China’s National Development and Reform Commission on September 3. The documents were made public on government websites on Friday. It suggests collaboration among all the participating agencies.
This document, unlike previous government statements which refer to cryptos using the same language umbrella, specifically mentions bitcoin, Ethereum, and Tether as stablecoins enter China’s regulatory lexicon.
Mark Peikin of Bespoke Growth Partners believes that this represents the beginning of pressure on bitcoin prices and other cryptocurrency. “The risks faced by Chinese investors will have an important spill-over effect and lead to an immediate risk-off trades in the U.S. Crypto market,” he said.
“Chinese investors, many of whom continued to turn a cold shoulder to the Chinese government’s latest and largest crackdown on cryptocurrency trading the last several months, may no longer remain bellicose,” Peikin told CNBC.
“Chinese investors thus far largely skirted the ban by decoupling transactions – using domestic OTC platforms or increasingly of late, off-shore outlets, to reach agreement on trade price, and then using banks or fintech platforms to transfer yuan in settlement,” continued Peikin.
But given the PBOC has improved its capabilities to monitor crypto transactions – and the recent order that fintech companies, including the Ant Group, not provide crypto-related services – Peikin says this workaround used by Chinese investors will become a progressively narrow tunnel.
The PBOC’s Friday statement adds to the turmoil in crypto markets caused by other China news this week. A liquidity crisis at property developer China Evergrande Group raised concerns over a growing property bubble in China. That fear rippled across the global economy, sending the price of many cryptocurrencies into the red.
Not all believe this downward pressure will be sustained.
Sobrado thinks the market is overreacting to Friday’s announcement from the PBOC, given that a lot of the exchange volume in China is decentralized and conducted peer-to-peer (P2P) – increasingly the most telling metric of crypto adoption. Sobrado believes that although exchanging tokens through P2P does not evade regulatory scrutiny but those exchanges are more difficult to locate.
Lesperance points out that cryptos could actually be a more attractive asset class because they can provide a hedge against sovereign risks.
The biggest question, however, is whether the latest Beijing directive has any teeth. Sobrado said that the running joke in crypto was China having banned crypto many times. I’m willing to bet that people will trade bitcoins in China within a year.
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