Will China’s Ban Hurt Cryptocurrencies?
PRICES ON CRYPTOCURRENCY PLATFORMS Bitcoin and Ether have been volatile in recent weeks after China’s central bank recently stated that all cryptocurrency-related activities were illegal. That is widely seen as the county’s effort to curb currency manipulation, flight of capital, and technology-related risks it perceives in cryptocurrencies. But it would be “dangerous” to assume that the decline and volatility in cryptocurrency prices are a result of China’s ban, according to Kevin Werbach, Wharton professor of legal studies and business ethics.
In a recent interview on the Wharton Business Daily radio show on SiriusXM, Werbach pointed to numerous other factors that shape cryptocurrency prices. The evolution of cryptocurrencies will be shaped by choices countries make on how to use them (e.g., as a digital asset or as a currency, or both) and the attendant regulation, he said. They are not about to become globally accepted as yet, even as some countries have embraced them; recently, El Salvador adopted Bitcoin as its currency and Switzerland cleared the way for more trading of Bitcoin and other digital assets in the country.
Wharton Business Daily (WBD):
How surprising was it to hear about the People’s Bank of China banning cryptocurrency transactions?
It was not surprising at all. China has been strictly regulating and limiting cryptocurrency activity for a number of years. In 2017, it banned exchanges operating in China. It also banned initial coin offerings where companies were offering tokens and raising large sums of money all around the world. And various regulatory agencies in China have made a series of statements over the years that they are very concerned about cryptocurrencies and digital assets leading to scams and financial manipulation.
Also, China just a few months ago cracked down on Bitcoin and cryptocurrency mining in the country; it had been the most significant area of such mining in the world. There had been a number of earlier suggestions that [China’s] government agencies were concerned about mining, but they took a serious turn earlier this year and most of the major mining operations have left China. So, this new announcement was in line with that saying, “We are really serious. We mean it.”
Kevin Werbach: WBD:
How does that impact the overall process of mining Bitcoin and other cryptocurrencies as we move forward?
Werbach:
China for a long time has had the highest concentration of cryptocurrency mining activity, but that mining industry is now a multibillion-dollar industry around the world. Many operators, networks, and pools based in China had for a number of years been developing operations overseas. When it became clear that Chinese authorities were serious about cracking down on mining, they started literally unplugging the mining machines and shipping them to other locations, including to the U.S. So there was a period of time where the overall level of mining activity dropped sharply.
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