China’s attack on Bitcoin is part of a wider struggle to fuel innovation while staying in control.

Every bitcoin crash has many reasons. Given the current crisis (total crypto market cap is down 40% in less than 2 weeks), China’s latest crypto crackdown threat is certainly one of them. But the genesis of such an incident is only a side effect of a much broader story: the desire to control the entire financial lives of Chinese individuals.

Over the past year or two, China’s rulers have taken a number of steps that are clearly aimed at stifling open financial systems, not specifically cryptocurrencies. That includes managing Jack Ma, one of the richest men in the world, and developing a digital yuan, the accept has built-in surveillance and censorship functions.

In the past, China’s reluctance to accept cryptocurrencies appeared to have something to do with protecting the population from fraud and theft. But amid this ever-widespread financial control, the latest round of restrictions could be seen as a turning point as the state shifts its focus from protecting its people to protecting its own power.

On May 18, China reaffirmed existing cryptocurrency restrictions on banks and payment providers. On Friday May 22nd, China’s Vice Premier Liu He chaired a meeting of an important financial management committee. In a later statement, he and the committee called for crackdown on “cryptocurrency mining and trading activities” in China. The mining and trade statement is said to be new and noteworthy given that Vice Premier Liu He is in his current position of power.

The news had immediate effect. As evidenced by the fact that mining companies including HashCow and BTC.TOP started closing on Monday, like Bitcoin magazine reported. Scattered rumors suggest that Chinese miners are moving to many nearby locations, including Kazakhstan, and mining equipment is being displayed in bulk at local auctions.

According to the statistical, Bitcoin’s network hash rate (a measure of the number and power of Bitcoin miners) has also dropped about 15% over the past week. However, it seems that only a small part of this can be attributed to political changes in China, as declining Bitcoin prices displace less and less profitable miners from the global network. Matthew Graham from China-focused blockchain mutual fund Sino-Global Capital speak that the drop in hash rate is not due to the crackdown.

At the time Mr. Liu He made the testimony, something strange was noticed. No law has been passed, and no formal legislative process has been initiated. Just a statement from the committee meeting, in the form of mere policy recommendations. In the United States, such a statement would be seen as an opportunity for lawmakers to position themselves or as a way to signal companies to prepare for future change.

But in China, the declaration is often viewed as politics: an instant statement of the new status quo. Because of this, Chinese miners began closing within days of the commission’s announcement, rather than waiting for another official trial.

Such risks became apparent last November when the Chinese Communist Party rioted one of the most powerful men in the world, Jack Ma, founder of AliBaba. At that point, Ma was ready to go public for Ant Group, a fintech arm of AliBaba. However, on November 6, almost in the last minute before the event, authorities canceled the IPO, which was expected to be worth $ 34 billion. In addition to investing losses, this intervention cost Ma itself billions of dollars.

Jack Ma – father of AliBaba

The reason for this is the need for tighter regulatory scrutiny of financial and technology markets, possibly including Ant Group’s hugely popular Alipay app, which is ahead of both Apple Pay and other major providers. But it is also considered a countermeasure to Jack Ma when he gave a speech just a month before the IPO in which he sharply criticized the Chinese financial regulator.

Ghost mysteriously disappeared for the next three months; it finally reappeared in a short video in January 2021. One observer described the short clip as “like a hostage video” and could almost literally be true. If so, the Chinese Communist Party treats a man with a net worth of roughly $ 46 billion when he looks like a threat to its control. .

Something similar happened to Justin Sun, if lighter and less exotic, after paying $ 4.6 million to have lunch with Warren Buffet. Sun touted lunch in advance as a victory and aroused skepticism when Sun later claimed he had to postpone it because of kidney stones.

However, Sun said he recovered the next day. report It was later revealed that the illness was actually due to strong pressure from China forcing the Sun to cancel his lunch. The New York Times was blunt in the subtitle of her article describe China is a place “where executives sometimes disappear”.

According to the news, Sun later apologized for being too embarrassed to be his company’s promoter. Some see this as a sign that at a time when so many Chinese are being defrauded by pyramid schemes and scams, Sun is largely punished by the Chinese Communist Party’s anti-fraud efforts. The final dinner was only allowed to take place in February 2020.

The Truth About Cryptocurrency In China

All of this speaks for two important facts to remember about China and cryptocurrencies.

The first is the regulatory context. From a distance, China can look like a modern rule of law. But it’s still an autocratic one-party state, and that has increased over the past decade. This means that changing the position of the Chinese Communist Party or Xi Jinping doesn’t have to go through a real legislative process to become the new rules-based policy. Instead, things that are seen as informal or tentative signals elsewhere – such as board minutes – are taken as a guideline and immediately enforced by every CEO if they don’t want to literally sink into dungeon.

An interpretation of this according to users Twitter: China’s policies are “experimental” and allow more flexibility than a rule of law approach – because all of these claims can be reversed at any time. But it also means that private sector entrepreneurs lack predictable planning conditions. Overall, it is difficult to infer that China’s undemocratic behavior increases business risk and volatility there.

Second, and closely related, China is making much broader efforts to create an innovation economy in an authoritarian society. The case of the Ant Group shows how difficult this can be: whether innovators have to assess their courage to innovate precisely, without relying on clear laws and guidelines, but on their feelings of the time given? They seem to be getting closer to deciding that crypto isn’t entirely compatible with them, but most importantly, it means more opportunities for innovators in more liberal societies.

China’s new moves could justify the short-term reluctance of global crypto investors – which at least seems to have reshuffled the playing field. But if it does, the broader model shows why Bitcoin and cryptocurrencies are so important and attractive in the long run. If even a dollar billionaire like Jack Ma can be thrown out of the game at any time, a system that no one controls becomes even more valuable.

Disclaimer: This article was translated from the Coindesk and is for informational purposes only, not for investment advice or political implications. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

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