On 24 September, Chinese regulators intensified the country's crackdown on cryptocurrencies, and imposed a blanket ban on all crypto transactions and crypto mining.
China’s central People’s Bank of China (PBOC) said in a notice that it is illegal to facilitate cryptocurrency trading and plans to punish anyone doing so, including those working for overseas platforms from within China.
Ten Chinese agencies, including the National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology and the Ministry of Public Security listed cryptocurrency mining as a sector to be eliminated.
It is worth noting that China’s crackdown on crypto isn’t new . There have been multiple instances in the recent past where the Chinese government banned Initial Coin Offerings (ICO), followed by banning Bitcoin mining.
But will China’s crypto ban be a blessing in disguise for India? Here we find out.
The Peoples’ Bank of China’s recent diktat on virtual currencies is more severe and has far reaching implications.
Sharat Chandra, blockchain and emerging tech evangelist, told The Quint that even support services offered by IT companies with respect to crypto custody, custodial as well as non-custodial wallets, is deemed illegal.
The People’s Bank of China (PBOC) issued a notice on further Preventing and Disposing of the Risk of Hype in Virtual Currency Trading. The notice deemed virtual currencies like Bitcoin, Ether, etc, illegal.
The PBOC circular states: “Virtual currency does not have the same legal status as legal currency. Virtual currencies such as Bitcoin, Ether, and TEDA have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed accounts or similar technologies, and exist in digital form. They are not legal and should not and cannot be used as currency in the market."
The provision of services by overseas virtual currency exchanges to Chinese residents through the Internet is also an illegal financial activity.
Bitcoin Trembles But Savvy Investors Buy More
In a borderless and fluid crypto verse, any prohibitive order by the Chinese government on digital assets will have repercussions beyond its borders.
Chandra notes that China’s recent ban on crypto will have very minimal impact on India and will be limited to Indian entities or businesses supporting the likes of Huobi, Binance and OTC platforms associated with these exchanges.
"The ban did cause a ripple effect on Indian exchanges and traders squared off their positions in smaller cryptocurrencies. Savvy crypto investors bought more Bitcoins and Ethereum," he added.
Meanwhile, crypto experts suggest that Bitcoin maximalists see this event as an opportunity to “buy the dip” and consolidate their positions. In common crypto parlance, there is no exit strategy for “Bitcoin” while the same may not hold true for other cryptocurrencies.
"The ban would ultimately lead to the closure of Over The Counter (OTC) platforms linked to exchanges like Huobi Global and Binance as these exchanges have a significant user base from Mainland China. OTC platforms would cease to offer services to Chinese users. Huobi is expected to clean its existing Chinese users by the end of this year."Sharat Chandra, Blockchain & Emerging Tech Evangelist.
Is the Ban a Blessing in Disguise for India?
Despite regulatory uncertainty, India has adopted a more nuanced approach on crypto and the Union Finance Minister Nirmala Sitharaman has said on multiple occasions that the government won’t shut down innovation with respect to crypto and fintech.
India stands second on the list of Global Crypto Adoption compiled by Chainalysis.
After the news broke, The price of Bitcoin fell sharply, however, it seems that the news has failed to discourage cryptocurrency buyers, with the Bitcoin price adding almost 5 percent over the last 24 hours, while Ethereum has soared a blistering 12 percent.
According to Forbes, other major cryptocurrencies are making similar gains, with Ethereum rival Solana also up about 12 percent.
"The Indian crypto market is too big to ignore. This is one of the many reasons why exchanges like CrossTower, a US-based exchange, have set up their operations in India and more crypto businesses will set foot in India," Chandra told The Quint.
Nischal Shetty, CEO, WazirX, said: “This news (China ban) has led to a drop in crypto prices around the world, including India, which is a common occurrence after any news, which creates fear, uncertainty and doubt (FUD). However, I don’t see any long-term impact of this on the Indian crypto ecosystem."
However, Hitesh Malviya, founder, itsblockchain.com told The Quint that there is a possibility of Bitcoin dropping down further if any negative news come out in regards to Evergrande, the Chinese real estate firm, as such news will affect all capital markets.
Malviya has advised investors to watch out for the price action carefully, and avoid taking any short term positions. "For long term positions, price levels below 40000$ are good entry points for Bitcoin," he asserted.