The media reported that Chinese authorities have introduced a ban on cryptocurrency storage. Earlier, the country had already declared mining and trading in digital assets illegal.
The crypto market fell in response to the news. Here is how the latest ban by Chinese authorities may affect the crypto industry.
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What Happened
The Chinese government has announced new restrictions on the crypto community. Authorities now ban not only the trading and mining of cryptocurrencies, but also the private ownership of digital assets such as Bitcoin.
The ban could encourage greater decentralization of cryptocurrency use in Asia, as users seek out jurisdictions with more favorable policies.
The decision underscores the Chinese authorities' desire to centralize control over the financial system, especially amid the promotion of the digital yuan. The national cryptocurrency is a central bank digital currency (CBDC). Control over the circulation of the digital yuan is entirely in the hands of the authorities. Regulators see traditional cryptocurrencies such as Bitcoin as competitors to their CBDC. These restrictive measures aim to reduce Chinese users' interest in other digital coins.
The decision to ban private storage of cryptocurrencies was preceded by news of the sale of confiscated cryptocurrencies by Chinese authorities. Even after regulators sold some of the coins, China remains second among countries with the largest holdings of BTC. The PRC has 194,000 Bitcoins worth $20.6 billion on its balance sheet, or 0.924% of the cryptocurrency's total supply. The sale of such a volume of BTC could be a powerful blow to the market. At the same time, it is not known whether the ban on crypto storage extends to government agencies, or whether China plans to liquidate all its holdings.
Notably, there were earlier rumors circulating in the market that China might, on the contrary, lift restrictions on crypto.
Market Reaction
The crypto market reacted to the news with a drop. Bitcoin fell to $104,684 at one point, but then began to recover. At the time of writing, BTC is trading at $104,541.
Following BTC, many altcoins also declined. Among the top 10 by market capitalization, Cardano recorded the largest losses in 24 hours (-5.55%).
Many members of the crypto community had trading positions liquidated amid the fall of Bitcoin. For example, popular trader James Wynn liquidated 949 BTC ($99.3 million).
The crypto community has ridiculed the Chinese authorities' attempts to ban their citizens from using cryptocurrencies. In their opinion, these restrictive measures will not force the Chinese to stop using Bitcoin.
Not the First Ban
The ban on private storage of cryptocurrencies is not the first for Chinese crypto community members. PRC regulators have been consistently suppressing the crypto industry for several years.
In September 2017, China banned ICOs and crypto trading. Amid the PRC authorities' pressure on the crypto industry, BTC fell in price by almost 40% almost overnight. However, by December 2017, Bitcoin reached a new all-time high near the $20,000 mark.
In May 2021, Chinese authorities imposed a ban on mining. The decision hurt the market because, at the time, the PRC was the main center of bitcoin mining. As Chinese miners had to shut down their equipment and look for a new home, the BTC hashrate collapsed rapidly. The price of Bitcoin plummeted as well, with the depth of the fall exceeding 50%. However, by November 2021, BTC reached a new all-time high near $69,000.
Past market crashes following crypto bans in China suggest that regulatory pressure from Chinese authorities is not fatal to the industry. Another ban is unlikely to pose a serious problem for the global crypto community.
