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Several media outlets and crypto communities are citing experts’ predictions indicating that China may lift its ban on Bitcoin and other cryptocurrencies within the next three months. China previously banned cryptocurrencies due to financial risks and environmental concerns, but the recent approval of a Bitcoin ETF in Hong Kong might prompt the reversal of the ban. Ben Charoenwong, a scholar at the National University of Singapore, suggested that capital flows have surpassed control.
Crypto media CoinPedia and prominent crypto community BitcoinLFG revealed that China, known for its tough stance on cryptocurrencies, appears poised to reconsider its ban on Bitcoin soon. This news coincides with Hong Kong’s significant step towards accepting Bitcoin, including approving a Bitcoin spot ETF.
As early as September 2017, China began cracking down on cryptocurrencies, imposing strict regulations on initial coin offerings (ICOs) and effectively shutting down cryptocurrency exchanges. Recently, Hong Kong’s approval of spot Bitcoin and Ether ETFs signals a potential turning point in China’s cryptocurrency policy. These ETFs, approved by the Securities and Futures Commission (SFC) of Hong Kong, started trading on April 30, making Hong Kong the first Asian financial center to embrace cryptocurrencies as mainstream investment instruments. With the growing popularity of Hong Kong’s Bitcoin ETFs, Beijing may see an opportunity to rejoin the cryptocurrency market. Additionally, the success of the US Bitcoin spot ETF has attracted significant inflows of funds, which could influence China’s decision to lift the Bitcoin ban.
In tumultuous times, Bitcoin and other cryptocurrencies become more attractive. Similar to gold, Bitcoin can serve as a hedge tool for Chinese investors against broader economic uncertainties. Furthermore, Bitcoin’s decentralized nature makes regulating transactions and allowing anyone to participate in the network extremely challenging.
Despite the risks of regulatory crackdowns, retail traders see potential benefits in having alternative investment sources and the ability to transfer funds out of the country and bypass capital controls. Ben Charoenwong of the National University of Singapore pointed out, “In other words, defying rules by investing in Bitcoin may not only bring higher returns but also the possibility of circumventing capital controls. After all, if using cryptocurrencies is already illegal, why not use them for wealth transfer?”
To this end, cryptocurrency enthusiasts in China are turning to virtual private networks (VPNs) and offshore cryptocurrency exchanges to evade the ban. These digital backdoors provide a lifeline for cryptocurrency traders, enabling them to conduct business outside the scrutiny of Chinese regulators. Additionally, peer-to-peer (P2P) trading and over-the-counter (OTC) trading desks are becoming increasingly popular.
“As anyone can participate anonymously in the system, the enforcement of Beijing’s previous ban becomes difficult,” Ben noted.
With the Chinese government tightening restrictions on capital outflows, the marginal benefits of using cryptocurrencies as a means of cross-border transactions become more appealing to investors. Therefore, the Chinese government may adopt further restrictive measures to continue the game of whack-a-mole and prevent external capital inflows. As this situation unfolds, the marginal benefits of using cryptocurrencies may become even higher.
In conclusion, facing this new category of volatile assets, the government cannot stand idly by. A significant collapse of cryptocurrencies could exacerbate investor sentiment and potentially lead to some turmoil as investors feel they have no choice but to make up for their losses. As the tug-of-war between regulatory agencies and market forces continues, the resilience and ingenuity of Chinese retail investors demonstrate the enduring allure of cryptocurrencies.
