China and Hong Kong bitcoin holders scramble to protect their crypto assets

China and Hong Kong bitcoin holders scramble to protect their crypto assets

A bitcoin cash machine in Hong Kong.

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Some crypto holders in China and Hong Kong are scrambling to find a way to protect their bitcoins and other tokens after the Chinese central bank on Friday released a new document, a soup to monitor cryptocurrencies, including the system, spelling out strict measures in its widespread crypto crackdown. transaction.

Bitcoin fell 6% and ether fell 10% amid a massive selloff early Friday as investors digested the news.

“Since the announcement less than two hours ago, I have received over a dozen messages – emails, phones and encrypted apps – from Chinese cryptocurrency holders seeking to access and protect their crypto holdings. in foreign currencies and cold wallets. Looking for a solution. David Lesperance, a Toronto-based lawyer who specializes in relocating wealthy crypto holders to other countries to save taxes, told CNBC early Friday.

Lesperance said the move was an attempt to freeze crypto assets so that holders cannot legally do anything with them. “With extremely volatile assets unable to do anything, I suspect that like Roosevelt and gold, the Chinese government will ‘offer’ to convert them to e-yuan in the future at a certain market price.” He referred to President Franklin Roosevelt’s policy on private ownership of gold, which was later repealed.

“I had been anticipating this for some time as part of the measures taken by the Chinese government to end any potential competition for the next digital yuan,” Lesperance said.

The People’s Bank of China said on its website on Friday that all cryptocurrency-related transactions in China are illegal, including services provided by offshore exchanges. According to the PBOC, services that offer trading, order matching, issuance of tokens and trading of derivatives for virtual currencies are strictly prohibited.

The directive will target over-the-counter platforms such as OKEx, which allows users in China to exchange fiat currencies for crypto tokens. An OKEx spokesperson told CNBC the company is monitoring the information and will notify CNBC once the next steps are decided.

Lesperance says some of his customers are also concerned about their safety.

“They are concerned about themselves personally, as they suspect that the Chinese government is well aware of their past crypto activities, and they don’t want to be the next Jack Ma as the goal of ‘general prosperity’,” Lesperance said. , Who Helped Amid Cryptocurrency Rising In US, Customers Must Be Abroad To Avoid Tax

That said, it’s common for an authoritarian state to go after digital currencies.

In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities banned token sales in 2017 and promised to continue targeting crypto exchanges in 2019. And earlier this year, half of the global bitcoin network went extinct for a few months due to the deletion by China’s crypto mining industry.

“Today’s advice is not entirely new, and it is not a change in policy,” said Boaz Sobrado, London-based fintech data analyst.

But this time, the crypto announcement involved 10 agencies, including key departments such as the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security, to show more unity among the country’s top officials. . The State Administration of Foreign Exchange also participated, which could be a sign that law enforcement in this area may intensify.

coordination signs

There are more signs of early government coordination in China. The PBOC document was first announced on September 15, and a document banning all crypto mining was released by China’s National Development and Reform Commission on September 3. Both were released on official government platforms on Friday, suggesting collaboration between all participating agencies.

And unlike previous government statements that referred to crypto under the same generic language, this document specifically calls out Bitcoin, Ethereum, and Tether, as stablecoins begin to enter regulator jargon in China.

Mark Peikin, CEO of Bespoke Growth Partners, believes this is the start of broader, short-term pressure on the price of bitcoin and other cryptocurrencies and that “the risks facing Chinese investors will have a significant ripple effect, causing There will be an immediate risk -off trading in the US crypto market.

“Chinese investors, many of whom have continued to ignore the Chinese government’s latest and greatest crackdown on cryptocurrency trading in recent months, can no longer be belligerent,” Peikin told CNBC.

Peikin said: “Chinese investors have so far largely lifted the ban by reducing transactions – using domestic over-the-counter platforms or increasingly late offshore outlets – to achieve a agreement on trade value, then to transfer the yuan into settlement using banks or fintech platforms. “

But as PBOC has improved its capabilities for monitoring crypto transactions – and a recent mandate that fintech companies, including Ant Group, do not provide crypto-related services – Peikin said this solution is being used by investors. Chinese. An increasingly narrow tunnel will form.

Friday’s statement from PBOC adds to other news from China this week that rocked the crypto markets. The liquidity crisis at real estate developer Evergrande has raised concerns about the growing asset bubble in China. This fear has spread to the global economy, turning the price of many cryptocurrencies red.

However, not all are convinced that this downward pressure on the crypto market will continue.

Sobrado believes the market is overtaking PBoC’s Friday announcement, noting that much of China’s trading volume is decentralized and performed peer-to-peer – the most telling of crypto adoption. The metric. While the token exchange does not escape P2P regulatory scrutiny, Sobrado said these crypto exchanges are more difficult to follow.

Lesperance also pointed out that Friday’s news could actually strengthen the business case for crypto as an asset class, as it is a hedge against sovereign risk.

Ultimately, the big question is whether this latest directive from Beijing has merit. “The joke that’s going on in crypto is that China has banned crypto hundreds of times,” Sobrado said. “I’m willing to bet people will be trading bitcoin in China in a year.”

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