This wasn’t a Surprise Move

In September, the Chinese government announced that they were considering banning cryptocurrency exchanges. Turns out, they were pretty serious about it. By November 1, every single one of the cryptocurrency exchanges in China was shut down.

This drastic move means that exchanging cryptocurrencies in China is now officially illegal. But Chinese investors can still be involved in the cryptocurrency space. It’s only that now they’ll have to operate offshore.

But Why?

Chinese people love gambling, and cryptocurrencies managed to catch their fancy pretty well. The last two years saw a huge jump in Chinese people’s investments in various cryptocurrencies. Their love of gambling, and oodles of spare cash courtesy the booming Chinese economy made a heady cocktail for sure.

But what must raised the red flags that led to Chinese monetary policymakers coming down so hard on cryptocurrency exchanges is something a bit more nefarious than mere gambling. In recent years, a few professional investment firms in China have been investing heavily in new cryptocurrencies. The problem with these new cryptocurrencies is that most of them seem to have been created out of thin air, and used to fund new start-ups. Before being banned along with the cryptocurrency exchanges, hundreds of millions of dollars have been raised in the ICO market. As many claim that a significant portion of this money is fake capital, it’s not surprising that China decided to crack down on the digital currency exchanges.

The reason countries are so wary of cryptocurrencies is that the decentralized nature of cryptocurrencies make them extremely hard to control. That, in turn makes stopping criminal activities, including tax evasion, harder too. And governments may look the other way when it comes to other crimes, but not tax evasion. Hell hath no fury like a government that has been deprived of its tax money!

The exchanges aren’t exactly ‘dead’

The cryptocurrency exchanges in China have mananged to survive through. They simply moved their servers abroad. For example, Huobi, one of the major Bitcoin platforms in China, moved their servers to Hongkong, South Korea, and Singapore after shuttering their operations in China.

The movement of Chinese money is not going to stop either. The only difference is that now the funds will not move in and out of local currency via direct deposit anymore, but via P2P transactions. The powers that be at the helm of Chinese regulatory authorities are going to hate it though, as P2P transactions make it even harder to prevent money laundering.

What’s Next?

As we’ve already mentioned, Chinese people are still going to keep investing in cryptocurrencies. The process is going to be a little trickier than before, but they aren’t going to stop. That’s a train that cannot be stopped!

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