China and Hong Kong bitcoin holders scramble to protect their crypto assets


A Bitcoin ATM in Hong Kong.

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Some crypto holders in China and Hong Kong are scrambling to find a way to protect their bitcoins and other tokens after the Chinese central bank released a new document on Friday setting out tougher measures in its broader crypto crackdown, including inflated systems to monitor crypto-related transactions.

Bitcoin lost as much as 6% and ether sank as much as 10%, amid a wider sell-off on Friday morning as investors digested the news.

“Since the announcement less than two hours ago, I have already received over a dozen messages – email, phone and crypto app – from Chinese cryptocurrency holders looking for solutions on how to access and protect their crypto holdings in foreign exchanges and cold wallets “. David Lesperance, a Toronto-based lawyer who specializes in relocating wealthy crypto holders to other countries to save on taxes, told CNBC on Friday morning.

Lesperance said the move was an attempt to freeze crypto assets so that holders cannot legally do anything with them. “Besides not being able to do anything with an extremely volatile asset, I suspect that, like Roosevelt and gold, the Chinese government will” offer “them in the future to convert it to e-yuan at a fixed market price. . ”he said of President Franklin Roosevelt’s policy regarding private ownership of gold, which was later repealed.

“I have been predicting this for some time as part of the Chinese government’s moves to shut down any potential competition to the incoming digital yuan,” Lesperance said.

The People’s Bank of China said on its website on Friday that all cryptocurrency-related transactions in China are illegal, including services provided by offshore exchanges. Services offering transactions, order matching, issuance of tokens and derivatives for virtual currencies are all strictly prohibited, according to the PBOC.

The directive will target over-the-counter platforms like OKEx, which allows users in China to exchange fiat currencies for crypto tokens. A spokesperson for OKEx told CNBC the company is reviewing the news and will let CNBC know once it decides on the next steps.

Lesperance says some of his customers are also concerned for their safety.

“They are personally concerned about themselves, as they suspect that the Chinese government is well aware of their past crypto activities, and they don’t want to become the next Jack Ma, as the target of ‘common prosperity’,” Lesperance said. , who helped clients move abroad to avoid taxes, amid a growing crackdown on crypto in the United States

That said, it’s common for the authoritarian state to go after digital currencies.

In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities halted token sales in 2017 and pledged to continue targeting crypto exchanges in 2019. And earlier this year, China’s withdrawal from its crypto mining industry led to the obfuscation of half of the global bitcoin network for a few months.

“Today’s advice isn’t really new, and it’s not a change in policy,” said Boaz Sobrado, London-based fintech data analyst.

But this time, the crypto announcement involves 10 agencies, including key departments such as the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security, in a display of greater unity among senior officials. leaders of the country. The State Administration of Foreign Exchange also participated, which could be a sign that enforcement in this space could increase.

Coordination signs

There are other signs of early government coordination in China. The PBOC document was first announced on September 15, and a document banning all crypto mining by China’s National Development and Reform Commission was released on September 3. Both were posted on official government platforms on Friday, suggesting collaboration between all participating agencies.

And unlike past government statements that refer to cryptos under the same generic language, this document specifically calls out bitcoin, ethereum, and tether, as stablecoins begin to enter the lexicon of regulators in China.

Bespoke Growth Partners CEO Mark Peikin believes this is the start of widespread short-term pressure on the price of bitcoin and other cryptocurrencies and that “the risks facing Chinese investors will have a strong ripple effect, leading to immediate risk-free trading. in the US crypto market. “

“Chinese investors, many of whom have continued to ignore the Chinese government’s latest and largest crackdown on cryptocurrency trading in recent months, may no longer remain belligerent,” Peikin told CNBC.

“So far, Chinese investors have largely circumvented the ban by decoupling transactions – using domestic over-the-counter platforms or, increasingly recently, offshore outlets, to reach a deal on the trade price, then using banks or fintech platforms to transfer yuan in settlement, ”Peikin said.

But given that the PBOC has improved its capabilities for monitoring crypto transactions – and the recent order banning fintech companies, including Ant Group, from providing crypto-related services – Peikin said the workaround used by Chinese investors would become an increasingly narrow tunnel.

Friday’s statement from the PBOC adds to other news from China this week that rocked the crypto markets. A liquidity crisis at real estate developer Evergrande has raised concerns about the growth of the real estate bubble in China. This fear has spilled over into the global economy, sending the price of many cryptocurrencies into the red.

However, not all are convinced that this downward pressure on the crypto market will last.

Sobrado believes the market is overreacting to Friday’s PBOC announcement, given that much of China’s trading volume is decentralized and performed peer-to-peer – increasingly measuring most revealing of the adoption of crypto. While the P2P token exchange does not escape regulatory control, Sobrado said these crypto exchanges are more difficult to locate.

Lesperance also points out that Friday’s news could actually strengthen the business case for cryptos as an asset class, given that they are a hedge against sovereign risk.

Ultimately, the bigger question is whether this latest directive from Beijing has teeth. “The common crypto joke is that China has banned crypto hundreds of times,” Sobrado said. “I would bet people will be trading bitcoin in China in a year.”

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