China Cryptocurrencies Crackdown

What happened?

China put its most extreme ban on cryptocurrencies. Crypto exchange and others providers are banned by chinese government. China banned cryto transaction regardless of where the exchanges and account are based. The People's Bank of China says that the new rules are necessary to maintain national security and social stability. China make rules to limit the rise of cryptocurrency since 2013, with the gradual roll out of China's state backed digital yuan, the chinese government become more serious on the crack down.

But is not just China, US regulators are also watching closely. Gary Gensler, Chairman of SEC spoke about cryptocurrencies in event host by Washington Post. He stated he does not think there is a long term viability and SEC is working overtime to create new regulations for cryptocurrency markets that will be more than what is already on the books.

Why China banning Cryptocurrency?

The reasons China increasely severe bans on crypto range from money laundering and smuggling, to enviromental pollution and intensive electricity used for crypto mining. These critcism had been around for some time.

Power Consumption

Goldman cuts China forecasts due to power outrages in china. Goldman estimate 44% of industrial activities had been affected by power cut. China had also been pressured to meet enviromental targets for energy consumption and intensity. If energy is scarce, the government would rather see it go to factories and people's homes rather than crypto mining. As the world become more serious about enviromental issue, we can expected more focus on energy intensive crypto mining.

Money laundary and smuggling

The crypto facilitate cross-border payment. The chinese government desire to exert greater control over the economic activity in the country. The china central bank will be concern with the rise of decentralised currency that transfer the fund in and out of the country as this reduce the central banks ability to tailor domestic monetary policy. The easier to transfer money across countries, the more difficult for monetary authorities to manage both currency stability and independent monetary policy. This will be an issue for every central banks, not only china. This will be taken very seriously by central banks around the world.

Why other countries might want to regulate crypto?

Why do traditional banking system so slow and expensive? There are financial institutions control cross-border transfers as there are huge regulatory requirements in place to control the flow of ill gotten gains, within country and cross border. Banks today are high tech firm that hires huge number of programmers, they seek way to do things faster and cheaper. But there are lot of regulations in place to prevent money laundary, tax evasion and funding terrorist groups, this is the bottleneck of traditional banking.

All financial insitute are abide to KYC regulations. Insitution are require to know who their customers are, verify who they cialm they are, source of the fund, and keep up to date the information. Financial insitution have the responsibility to ensure they are not dealing with people that suspect of criminal activities. If financial insitutions are found negligent, they may face large fine and lose their regulatory authorities to do buisness. The whole process is time consuming and expensive to do correctly.

Thus it make no sense for regulators to enforce these requirement on international money transfers in traditional financial system and allow crypto to be exempt. If today, crypto is faster and cheaper to move money around the world, it is simply because crypto ignore all these regulations.

How is US plan to regulate crypto?

It would appear Gary Gensler's initial focus is on DeFi, which make use of smart contract that potential eliminate the needs of exchanges and middleman. The reason the regulators so focus on this area because DeFi platforms would replace the entities government rely on to enforce law on money laundary and tax evasion. Just to be clear money laundary dont need cryptocurrencies, most can be done by traditional method.

Currently, any crypto transactions, funding and redeeming, are still going through traditional financial channels, which have an anti-laundering regulations in place. Over time, if crypto began to used for day to day spending, criminal will find it very easy to avoid any check. If today, you are a criminal mastermind and want to show your source of money, you can draw a digital art and minted as an NFT, and get someone to buy it for $100 million.

Conclusion

The world will be watching how china deal with this situation, it might be close to impossible to ban crypto, but almost everything about cryptocurrencies is going against the direction of the regulators have been moving over time. There almost a guaranteed that there will be a show down between the regulators and the cryto space.