Bitcoin falls to $41000 as China declares that all the crypto related transactions are illegal including services provided in relation to crypto transactions by offshore exchanges. It declares that Bitcoin and Tether are not a fiat currency and are illicit to be circulated. This will be going to a full-scale clampdown and will close the existing loops in the financial system that enables the trading trough offshore based exchange and peer to peer digital transaction.
Chinese banks have been prohibited from dealing in cryptocurrencies since 2013. In 2017 crackdown exchanges were shut and forced to move to overseas destination, and exchanges were shut. Miners have been moving to Russia, North America and US.
China’s stated concern are financial stability and environmental risk.
However, the banning is strategic in nature and a part of series of co-ordinated action. China is nearing the launch of its digital currency scheduled at the time of winter Olympics, in Feb 2022, known as Digital Currency Electronic Payment (DCEP). China soon started the work on digital currency after initial ban on banks around 2013.
It is being interpreted that China wants its own digital currency to be launched at the earliest and get it accepted by multiple nations where it significantly exercises it influence. This will help in internationalisation of digital Yuan and may pose a challenge to the Dollar.
Since its own version of Digital Currency is near commencement, China will do its best to minimise the influence of private stable coins and tokens. This is also significant, as according recognition to Bitcoin or any other cryptocurrency by China, will help in making the private cryptocurrency stronger and more acceptable around the World and that means strengthening a rival currency without any apparent incentive.
Earlier in June 2021, Bit Coin has been strengthened by adoption of Bitcoin by El Salvador, which have allowed bitcoin to be the legal tender of El Salvador. Similarly, U.S. Senate recently passed $1.2 trillion, bipartisan Infrastructure, which plans to integrate the private digital currencies within the mainstream financial system by taxing the Digital Currencies.
Chinas action looks planned and deliberate. It is on its way to promote its own currency and minimize the influence of private digital currencies, to the extent possible. These actions are not limited to financial stability or pure environmental concern but part of strategic financial design, related to shaping the future monetary system.
Bureau Galactik Views