Ever since the news got out that the Chinese government is blocking new ICOs, news sites and fora have been buzzing with speculations about the future of cryptocurrencies in China. Reactions vary from plain denial, clear misreading of the situation and doom-scenario forecasts for the global crypto market. Chinese coins took a strong hit (NEO went down 50% since the news got out) and the much-expected crypto conferences in Beijing have been cancelled.
Over and out? Not really. Predicting the future is hard, but let’s give it a go:
1. China needs the blockchain:
The blockchain technology offers solutions to the problems China is currently facing. Efficient use of the technology will allow the government and its citizens to better control supply chains and increase the food safety. Smart contracts would allow it to better control emissions and curb pollution. It will be handy to battle local level corruption and improve its tax collection and the expansion of social security systems. No surprise, then, that the government has been a strong backer of blockchain technology and has been rolling out initiatives nationwide. Blockchain is here to stay in China.
2. But it will be a ‘Chinese’ blockchain?
The government will back home-grown initiatives by companies it can exert control over. As we have seen over and over in the Chinese tech space, Chinese companies will have freedom to innovate and they will be able launch new cryptos and smart contracts on the market, as long as they play by the central government’s rules. And the government just took a break to set those rules.
3. The crypto market will stabilize and hot money will decrease
The Chinese communist government claims to derive its power from creating prosperity for its citizens while maintaining stability. Though still a very small segment of the economy, the Chinese government does not want angry protests over coin scams. During the Shanghai stock market crash in the summer of 2015, the Chinese government enacted many measures to stem the tide of the turbulence and it stopped IPOs. Given the astronomically rising valuations of Chinese cryptos, it is my belief that the Chinese government wants to be ahead of the curve this time.
4. Control cross-border transactions
Since 2016 the Chinese government has focused on controlling China’s overseas capital flight and controlling the value of the RMB. Bitcoins and other cryptos have been a handy method to transfer money to overseas accounts. Exchange platforms will be strongly monitored and controlled, cash deposit for bitcoins made impossible, identifications will become more rigid and low maximum limits for crypto transfers will be imposed.
5. The long haul: local champions
The Chinese tech scene is dominated by the so-called BAT group, Baidu, Alibaba and Tencent – with the latter two taking the lead. Tencent and Alibaba have a massive userbase, the ability to impact the market quickly, tons of information about their users and the open support of the governments. If I were to invest in a Chinese crypto, I would look for the ones being backed by these companies.
About the author: Pieter Verstraete is a crypto enthusiast and founder of the China Crypto News Platform who has lived and done business in China since 2008.
Disclaimer: The opinions expressed on this site do not constitute investment advice.