April 17, 2023
By Anjali Kochhar
Even though cryptocurrencies are illegal in China, state-owned Chinese companies are supporting them. As a result, Hong Kong is becoming a substitute market for Chinese entities that want to explore the potential of cryptocurrencies but cannot do so legally in China, says the writer of BeingCrypto in an opinion piece.
Despite the fact that the People’s Bank of China prohibited all cryptocurrency transactions in September 2021, Chinese entities are now supporting crypto ventures, especially in Hong Kong. The reason for this shift in momentum is not entirely clear, but it may be due to advances in technology and changing attitudes towards cryptocurrencies.
In September 2021, the People’s Bank of China (PBOC) implemented a ban on all cryptocurrency transactions within the country. This was unexpected, considering China’s previous support for blockchain technology and the increasing interest in cryptocurrencies among Chinese investors. The ban made all cryptocurrency transactions, including trading and mining, punishable by law.
The PBOC justified the ban by citing concerns over financial stability, illegal activities, and the potential for cryptocurrencies to facilitate money laundering and other illegal activities. This move dealt a blow to the cryptocurrency industry, as China was one of the largest markets for digital currencies.
The immediate effect of the ban was a sharp decline in the number of crypto users and the value of cryptocurrencies like Bitcoin and Ethereum. Nevertheless, over time, the market has demonstrated resilience, and the value of cryptocurrencies has slowly recovered.
Despite the ban, many industry experts believed that it would only be temporary and that the government would eventually ease its stance on cryptocurrencies. They reasoned that the ban was to provide the government with time to develop clear regulations for the industry.
There could be several reasons why Chinese state-owned entities are now backing crypto ventures in Hong Kong. One explanation is that China sees the potential of blockchain technology and wants to support its development. China has been exploring the use of blockchain in various industries, including finance, logistics, and healthcare. And even made its own digital currency, the Digital Yuan.
Another reason could be that China wants to maintain its influence in Hong Kong, a Special Administrative Region of China. Hong Kong has been a hub for international finance and trade, and supporting the development of blockchain technology in Hong Kong could help China maintain its position as a regional economic powerhouse.
Additionally, the Chinese government may use these state-owned entities to indirectly invest in cryptocurrency, in the face of strict regulations on cryptocurrency trading and mining at home.
The success of the cryptocurrency industry in Hong Kong could have implications for market reforms in China, as Hong Kong has become a hub for crypto activity and innovation in the region, with a thriving community of exchanges, traders, and investors. This could serve as a model for policymakers in China, who have been more conservative when it comes to crypto and other disruptive technologies.
About the author
Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.