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9 Ways the Chinese Crypto Market is Different From the US

China’s aggressive pose against crypto has made it hard for Chinese traders to work their trade. However, as the holder of nearly 70 percent of the world’s crypto mining capability, cryptocurrencies remain active in China, despite the government’s recent actions.

How can this be? In what ways is the Chinese crypto market different from the US? This article will look at nine ways crypto is different in China from the United States.

 

The Banking Ban

China has had an inconsistent track record when it comes to official attitudes about crypto. However, its current aggression toward crypto has caused pause among some followers of the industry. In July, Chinese government-ran media bragged that its efforts to “starve” out crypto in the country has worked so well that the Chinese renminbi accounted for less than one percent of the global bitcoin trading. This is hard to fathom from a nation that once controlled nearly half of the bitcoin hashing rate.

For perspective, in September, the renminibi constituted over 90 percent of all bitcoin trades. It has been suggested that China’s withdrawal from bitcoin trading triggered not only the coin’s sharp drop in value, but its continuing bottoming in coin price.

To understand what is happening, it is important to note that China’s ban is more than a simple banking ban. China has banned the use of fiat currency for the purchase of cryptocurrency in both commercial and personal settings. China has restricted the rights of certain crypto assets to communicate on social media, and the government has even gone so far as to restrict the international travel for executives of Huobi and OKCoin.

When China first started its regulatory process against crypto, it was just against ICOs, which many nations had similar mixed feelings about. ICOs are unregulated, meaning that they are rife for fraud. The number of ICO fraud cases spiked with the 2017 bitcoin price bubble, forcing many countries to be retrospective in how they are protecting their investors.

However, it has become a good deal more aggressive since then. China has not only cracked down on the ICO industry in the country but has sought to block its citizens from seeking out ICO opportunities outside China’s borders. The amount of Chinese capital allowed to be invested internationally was curtailed to $50,000 USD and censors have blocked Internet access to any site or app offering crypto exchange-like services. Even companies specializing in blockchain technology are now scrutinizing to minimize crypto involvement.

“Shopping malls, hotels, restaurants, and office buildings in downtown Beijing have been ordered not to provide venues for activities that promote cryptocurrencies,” Coindesk reported. “A document, first circulated online on Wednesday [August 22, 2018], indicates that the district government has now banned commercial properties from hosting events relating to “cryptocurrency talks and promotion.” The missive appeared to have been issued on Aug. 17 from the financial service department of Beijing’s Chaoyang district.”

“An official from the department confirmed to CoinDesk on Wednesday that the document is authentic, adding that it was issued due to recent observations of promotional activities hosted in commercial properties. The official did not give further details. Based on the document, however, the financial service department intends the action to protect the financial safety of the public, to strengthen the position of Chinese yuan as the legal currency in China and to stabilize the country’s financial system.”

“We now order every shopping mall, restaurant, hotel and official building not to provide venues for any events that promotes or talks about cryptocurrency, and must report to the authority if such activities were found,” the document states.”

This is all a game of global economic “chicken.” To understand what China is doing, it should be noted that crypto mining is the only crypto business exempt from the current crypto ban. With the United States being both the holder of the reserve currency of most of the world and the world’s most indebted nation, America can define its global economic position at will. China, which has a larger economy than the U.S., seeks to change that. If crypto is the future of economics, and if China controls the vast majority of crypto assets … well, you can see where this is going.

“The two most promising markets for any industry or product, including blockchain, are India and China – with a combined population over a quarter of the world’s total and close to a billion people between the ages of 15 and 35,” Brave New Coin reports. “We tend to think of China as the big brother state which has – all but for mining – outlawed cryptocurrencies entirely in the country. Considering the government has imposed capital controls on citizens taking money out of the country and intervenes directly with stock exchanges to control buying and selling, crypto presented a way for citizens to circumvent the Communist Party’s orders.”

“The US dollars’ status as the world’s reserve currency is within the crosshairs of a resurgent Russia, and rising superpowers China and India who want to put an end to the US government’s debt jubilee (the world’s biggest debtor that prints money to repay debt denominated in its own currency) that has enabled it to run record-size deficits while hobbling the growth of other currencies.”

“It is no coincidence that China has become the world’s biggest miner of cryptocurrencies while banning their use in the country. The Chinese government has benefited from the intellectual property of the mining companies in exchange for their special exemption, while at the same time working towards a digital Renminbi (RMB) to strengthen the currency and country overall, the state-owned Shanghai Daily reporting: ‘The People’s Bank of China’s Institute of printing science is offering six positions for the design and development of digital currency-related software and hardware framework, a recruitment notice said, adding that candidates with experience in blockchain and Big Data technologies will be preferred… The candidates must hold master’s or doctoral degree in computer science, information security and cryptography, according to the notice.’”

It is believed that all of China’s exchanges and ICOs have left China or has shut down. One can now say that China controls the crypto reserve cryptocurrency, without being dependent on it.

 

The Majority of the Major Cryptocurrency’s Hashing Power is in China

This situation reflects the somewhat unusual carveout made for China’s robust crypto mining community. While the government has taken a strict turn against “illegal” or unregistered mining – largely because it poises a significant electrical drain on local communities and because of incidents of energy theft – which has become necessary following the order to utility companies to cut off such miners – the plurality of the coin’s hashrate is still controlled by Chinese firms.

The logic behind why China built up such a lead on mining is straightforward. Most bitcoin mining rigs made today are built by ASIC manufacturer Bitmain, a Chinese manufacturing firm. Bitmain maintains large farms of its own miners, capitalizing on the nation’s cheap electricity.

“Bitmain gained an edge by supplying a superior product in large quantities, a feat that has eluded every other company in the industry. The Ordos facility is stuffed almost exclusively with Bitmain’s best performing rig, the Antminer S9. According to company specs, the S9 is capable of churning out 14 terahashes, or 14 trillion hashes, every second while consuming around 0.1 joules of energy per gigahash for a total of about 1,400 watts (about as much as a microwave oven consumes),” IEEE reports.

“Although BitFury claims to be producing chips whose performance is nearly identical to those used in the S9, the company has packaged them into a very different product. Called the BlockBox, it’s a complete bitcoin-mining data center that BitFury ships to customers in a storage container. Beijing’s Canaan Creative is still selling mining rigs to the public, but it offers only one product, the AvalonMiner 741, and it’s only half as powerful and slightly less efficient than the S9.”

“An Antminer S9 houses 189 ASICs fabricated by the Taiwan Semiconductor Manufacturing Company (the world’s biggest foundry), using its 16-nanometer manufacturing process.”

“Each ASIC has more than 100 cores, all of which operate independently to run Bitcoin’s SHA-256 hashing algorithm. A control board on the top of the machine coordinates the work, downloading the block header to be hashed and distributing the problem to all the hashing engines, which then report back with solutions and the random numbers they used to get them.”

“All mining ASICs, Bitmain’s included, are performing essentially the same computation—the SHA-256 hashing algorithm—even if they go about it a bit differently. The standard algorithm takes 64 steps to complete, but in Bitcoin it is run twice for each block header, meaning a full round requires 128 steps that are heavy on integer addition.”

Besides the geopolitical implications of China controlling about 7p percent of the world’s crypto mining operations, there are practical ones, too. The mining rigs are usually set up in poorer regions, where government influence keeps energy prices low. These include Inner Mongolia, Xinjiang, and Qinghai. Crypto mining offers an industry for these regions to have transform their less-sophisticated economies.

There is, however, an “elephant in the room” mentality in place about a nation that controls so much cryptocurrency, but actively bans its citizens from using it. There is a sense that something will eventually break; either China will leverage its advantage or chase the miners out. For now, the Xi administration is still reacting to reports of ICO fraud, so we must wait to the reactionary stage finally ends.

“Bitcoin has survived in China because, for one thing, the virtual currency industry has potential to contribute to the economies of the country’s inland areas.,” the Nikkei Asian Review reports.

“In neighboring Sichuan Province, miners often diverted electricity from hydraulic power plants and other small generation facilities without government permission. The mines signed contracts with these plants but did not register as corporate entities. They did not report any profit either, leaving little income for the local government. Like Sichuan, Qinghai is a province with excess electricity supply capacity from solar and wind power. Both regions are also in financial straits and have little industry outside resource mining and tourism.”

“Qinghai is trying to develop cryptocurrency into a local industry that contributes to employment and tax revenue. In downtown Delingha, not far from the industrial park, a job advertisement for Alibaba Group Holding’s food delivery platform Ele.me was posted outside a local distribution center. Ele.me’s deliverymen make about 8,000 yuan ($1,249) per month, not far from levels in big cities like Shanghai or Beijing.”

“China’s leadership, led by President Xi Jinping, also has its own reasons for keeping cryptocurrencies around. China essentially holds the fate of virtual currencies in its hands, since it is believed to hold a roughly 70% share of the world’s mining. Transactions will face unavoidable delays should mining here slow. Bitmain Technologies, the largest maker of mining computers, is headquartered in Beijing.”

“Although China does not want cryptocurrency to catch on as a payment method — since that could undermine confidence in the home currency — it has an interest in influencing the global flow of money. Xi desires this power for China, similarly to how the U.S. seeks to retain the dollar’s key-currency status through its network of transactions worldwide.”

 

China’s Foreign Currency Exchange Limit

Chinese citizens are currently only limited to $50,000 USD or $15,300 annually that they can invest internationally. This is not just limited to cryptocurrency, but to business investments, real estate, forex transactions, and any other investment opportunity.

This, undoubtedly, has many affluent Chinese nationals upset. In Australia, for example, there was a booming trade in Chinese-bought real estate. Foreign investments were a way to get money out of the control of the communist mindset and give it a chance to work on the global market.

This is something the Chinese government is dead-set against. The idea is to keep all capital within China to help fuel the nation’s economic growth, which just recently grew on par to the United States. Bleeding off its economic parity would help the individual but hurt the state.

“China has sought to limit foreign exchange purchases by its citizens in an effort to conserve forex reserves. The new measure plugs one of the few remaining ways Chinese citizens get money out of the country by broadening the Rmb100,000 ($15,400) limit from a single account to a single individual. Previously, the annual limit of Rmb100,000 for overseas withdrawals was set for a single bank card,” FT reports.

“An annual purchase limit of $50,000 worth of foreign currency per person remained unchanged, said the State Administration of Foreign Exchange (SAFE) in a statement on Saturday. {December 31, 2016] A regional currency analyst said that the move appeared to be a tightening of capital controls. ‘I was not expecting this since outflows have been slowing. But by doing this it clearly shows China’s desire to manage the outflows more aggressively, particularly on individual flows’ he said.”

“According to the new rule, which takes effect on January 1, people who exceed the Rmb100,000 quota will be suspended from overseas transactions for the remainder of the year, as well as the following year, according to SAFE. Meanwhile, domestic card users will be barred from withdrawing more than Rmb10,000 a day overseas, it said. The new regulations represent the latest effort to combat what Beijing views as harmful and often illicit capital outflows.”

While major investors will be unaffected as they would still have access to foreign bank accounts and lines of credit, middle-of-the-road investors are caught in a tight spot.

Or, they were.

Recently, a Chinese court of arbitration ruled that bitcoin was property in China. “Individuals and businesses can now own and transfer bitcoin legally without fear of repercussions. The Shenzhen Court of International Arbitration ruled that bitcoin and other cryptocurrencies are valuable legal property and as such are protected under Chinese law,” reports Crypto Disrupt.

“The case concerned around USD 500,000 worth of cryptocurrencies – 20 Bitcoin, 70 Bitcoin Cash, and just over 12.5 Bitcoin Diamond. The defendant sought to argue that the transfer of cryptocurrencies was at the time illegal (with China’s notorious ICO and crypto ban), so the unnamed defendant could not return the coins to the rightful owner. The court concluded that the regulations did not apply to the private contract between the two parties and the case sets a landmark precedent. This is the first case of its kind in China to confirm cryptocurrencies as legal property. As per cryptocurrency researcher, Katherine Wu – ‘The Party contends that Bitcoin has characteristics of a property (SOV), can be controlled by the owner, and has economic value to the owner. It does not break any laws. This arbitrator agrees. In the arbitrator’s view, whether or not bitcoin is legal, the circulation and the payment of bitcoin is not illegal. Bitcoin does not have the same rights as fiat, but that does not mean that holding or paying with crypto is illegal.’”

This means that investors now have a perfectly legal way to get money out of the nation. They can buy bitcoin, send it out, and have it reconverted to whatever fiat currency they like. This is likely to re-energize renminbi trades in bitcoin.

This also means that the Chinese government may revisit its stance on personal possession of bitcoin soon. But, for now, this loophole exists.

 

The Ban on ICOs

There are no domestic means to invest in cryptocurrency in China. The nation’s clampdown on ICOs mean that there are no cryptocurrency businesses in the country and there is no non-mining Chinese crypto development.

This may be problematic for multiple reasons. As the banking industry moves to recognize crypto as an investment class, China’s “hands-off” posture threatens to pushback Chinese economic growth, especially when it comes to the potential development of national cryptocurrencies.

Let’s think of it this way: let’s say the rest of the world opt to return to the gold standard, while China rejects the idea. While commerce will be simplified among those that have similar trading terms, China must use an intermediary to participate, such as a commercial exchange that charges a fee on every transaction. Suddenly, China’s decision to reject the standard looks like a severe handicap.

At this point, that reality is remote. The ICO market and cryptocurrency in general does not come up to the market impact of other commodities, like gold. However, the development of national cryptocurrencies would quickly change this.

But, it may be a risk China is willing to take. “China is vastly different from its peers. The Chinese government and society demonstrate inherently communist qualities. Citizens are reliant on a centralized, government-approved structure wherein which they organize and navigate their lives. The Chinese market is remarkably controlled despite the country’s economic prosperity. The government restricts contact with the outside world while the Chinese people are focused on industry,” Crypto Slate reported.

“Considering China’s immensely centralized system, it is easy to see why they would be cautious if not downright suspicious of a new economic movement which promised decentralized freedom to the masses. China was the first country to be pro-active in questioning cryptocurrency and restricting their citizens’ access to it. In September 2017, the country made the decision to ban all cryptocurrency trading on exchanges from the Chinese mainland.”

“Not only could the volatile crypto and ICO market severely impact Chinese citizens, but the ideology behind it could severely undermine a government and societal structure that has been built around the ideas behind communism and a centralist system.”

“Beijing’s government is planning a more pro-active approach by simply intending to ban all individuals from accessing crypto and ICO-related sites from the Chinese mainland. This announcement was met with some hostility as crypto prices became immensely volatile and investors became frantic.”

“Following the Beijing government’s announcement, the Chinese search engine service, Baidu, is no longer allowed to display crypto or ICO ads. The Chinese social media platform, Weibo, is under the same restrictions. However, according to the Tokyo-based bitcoin trader, Donald Zhao, many China-based users simply use virtual private networks (VPNs) to access international crypto exchanges and to evade detection by the government. Zhao noted that China’s latest crackdown might even render this workaround impossible.”

“According to an ICO CEO, Wayne Cao, this new decision is likely to influence the crypto industry. Cao noted that the majority of ICO investors are Chinese, which means that the market will experience vast sluggishness in the next few weeks. The market will definitely be impacted by China’s decisive action. Only time will tell whether any of its financial peers might venture to adopt a similar strict attitude when it comes to cryptocurrencies.”

While China’s interest in controlling its economy is understandable, its blocking of innovation is less so. By blocking ICOs, China is actively denying new businesses in an emergent field from taking root in the nation. This “picking and choosing” winners may have a long-term impact on the Chinese economy.

 

Firewall Against Communication Outside China

A fact of living in China is that all your communications will be monitored. China pushes to ensure that no unwelcomed speech comes in or leave the nation. This makes China one of the most undemocratic nations in the world.

Take, for example, disrespecting the flag. “China has made disrespect of the national anthem a crime punishable by up to three years in jail, as it focuses on cementing the patriotic ‘China dream’ of its increasingly authoritarian president, Xi Jinping,” the Guardian reports. “The new law is likely to alarm citizens of Hong Kong and Macau, where the March of the Volunteers has been a flashpoint for unrest, amid growing concerns about Beijing’s efforts to exert its control over the city states.”

“Some Hong Kong football fans have booed the anthem during World Cup qualifiers and other matches. Pro-democracy activists fear the law will be used to undermine freedom of speech and protest, after a punishing year of setbacks including the jailing of prominent members of the democracy movement for their roles in anti-government protests.”

“Citizens of Hong Kong and Macau are not directly subject to the law, passed on Saturday by China’s rubber-stamp parliament, because they have their own legal systems. But a separate decree mandating 15 days in jail for disrespect of the flag was also written into their constitutions, or Basic Law. Senior lawmakers said that the new rule would be taken seriously, with people expected to get to their feet at social events, and anyone walking along the street required to stand still.”

“’Sometimes when the anthem is played at the Jockey Club, many people do not stand up,” Li Fei, chair of the Basic Law committee, was quoted as saying by the South China Morning Post. “This must change after the legislation comes into effect.’”

“The new law is aimed at anyone found to be ‘seriously’ disrespecting the national anthem including by reworking its lyrics, although there are few if any reports of the anthem being used for protests within China itself. The national flag and emblem were already protected by a similar law.”

China’s pushback against free speech represents just the tip of the iceberg of human rights offenses committed by President Xi. With crypto, these restrictions became acute and almost suffocating. China has restricted access to more than 100 crypto-friendly sites, blocked crypto conversations on WeChat, and shut down multiple VPNs in its attempt to control the crypto conversation in China.

This has been made worse by the fact that censorship-circumventing software like Tor no longer works in China. Such software used major websites’ traffic to camouflage incoming and outgoing messages. However, a change in Facebook’s and Google’s algorithms have made such camouflaging impossible.

While it is legal currently for citizens to hold cryptocurrency, they will have difficulty connecting to an exchange – there are none in China – or accessing social media to get current crypto information. This leaves P2P trading, which is riskier for the trader.

“Authorities adopted new measures to limit access to circumvention tools that allow netizens to scale the Great Firewall to access the uncensored global internet. In January 2017, the Ministry of Industry and Information Technology issued regulations making it unlawful to provide circumvention tools without the ministry’s pre-approval,” Human Rights Watch writes in its 2018 World Report.

“In March, Chongqing authorities made public a regulation that bans unauthorized use of internet circumvention tools in the city. Anyone—from individuals to companies—who does so would be ordered to disconnect and receive a warning. The regulation was unprecedented in banning all use of these tools. The same month a Guangdong court sentenced Deng Jiewei to nine months in jail for illegally selling virtual private networks, or VPNs, which protect user privacy by shielding browsing activities from service providers or state surveillance.”

“In July, Apple removed dozens of VPNs from its App store in China, citing compliance with government regulations. In August, the Cyberspace Administration of China (CAC) ordered five websites, including shopping giant Alibaba, to remove vendors that offered access to VPNs. In September, police detained Zhen Jianghua, activist and founder of a website that teaches people how to circumvent internet censorship, on suspicion of ‘inciting subversion.’ In November, in a letter to two US senators, Apple confirmed that it had removed 674 VPNs from its App store in China this year, citing compliance with government regulations.”

“Authorities further tightened screws on social media. In June, they shut down dozens of entertainment news and celebrity gossip social media accounts after calling on internet companies to “actively promote socialist core values” and stop the spread of “vulgar … sentiments.” In August, the CAC announced additional new regulations on the requirement of real-name registration. In September Weibo barred users who had not registered with their real names from posting messages on their own microblogs or comment on others.”

“In September, the CAC promulgated measures to make creators of online chat groups such as those on QQ and Wechat liable for information other users shared in the groups. The rules also require the service providers to establish credit rating systems for chat group users. Those who violate Chinese laws and regulations will have their credit scores lowered. In September, Beijing police arrested Liu Pengfei, the creator of a WeChat group that had discussed political and social issues.”

“Authorities continued their assault on academic freedom. In January, Sun Yat-sen University in Guangzhou banned staff from criticizing the Communist Party. In June, the Central Commission for Discipline Inspection, the party’s disciplinary body, issued a report accusing 14 top universities of ideological infractions after a months-long investigation. Several professors were fired for speaking critically of the Chinese government on social media. In August, Shi Jiepeng, a professor of classical Chinese at Beijing Normal University, was sacked for “improper comments”; Shi had called Mao Zedong a ‘devil.’”

“In August, Cambridge University Press admitted it had blocked access in China to more than 300 articles published in its journal China Quarterly, following orders from the Chinese government. The international backlash against the decision compelled the publishing house to restore the articles. In November, Springer Nature pulled access to over 1,000 articles in China. The publisher said the decision was to comply with Chinese regulations.”

“In March, authorities issued new measures to reduce the number of foreign children’s titles published in Chinese. In August, the Ministry of Education issued new national editions of primary and middle school liberal arts textbooks, with added emphasis on traditional culture and ‘core socialist values.’”

“Gui Minhai, a Swedish national and publisher of books critical of the Chinese leadership, was abducted in Thailand in October 2015. After holding Gui for two years in secret detention in China, the Chinese government in October told Swedish diplomats that Gui had been ‘released.’”

 

Wallets

There are no wallet providers in China. This means that Chinese investors must either use hardware wallets, software wallets on computers, or somehow connect to a foreign wallet provider. But, as previously mentioned, that is easier said than done.

The real world reality of this is that while Chinese residents are allowed to have crypto assets, they are not allowed to use them in the larger global crypto community.

But, there is a twist to this story. China is actively investigating the possibility of a national cryptocurrency and has recently patented a centralized wallet to use with this crypto asset. “The Digital Currency Research Lab at the People’s Bank of China (PBoC) has filed a new patent this week for a digital wallet that would allow users to track their transaction histories. The patent application was submitted with China’s State Intellectual Property Office (SIPO) Friday, June 22,” Cointelgraph reports.

“The new patent outlines how the proposed digital wallet could be used to track transaction data in coordination with a centralized digital currency issuance registration agency. The wallet would enable multi-signature security and manage digital assets that are encrypted – as existing cryptocurrencies – with private keys.”

“Transaction queries would yield results including the digital currency type, amount, source currency, as well as identification of the source and destination wallets. This week’s new patent is a part of a longer-term vision for blockchain integration pursued by China’s central bank. While the government maintains a hardline stance on decentralized cryptocurrencies such as Bitcoin (BTC), the PBoC has been extensively investigating the benefits of harnessing their underlying technology for the existing financial system.”

“The Governor of the PBoC, Zhou Xiaochuan, has suggested that digital currencies will ultimately diminish cash circulation and are “technologically inevitable,” while stressing the PBoC’s role in controlling the “unpredictable effects” of certain applications of blockchain.”

The prevailing attitude of the People’s Bank of China is that there is no room for cryptocurrency, except for its cryptocurrency. This is an attitude reflected in Ecuador and – increasingly – in India.

 

Trading Volumes versus National Currencies

The question of the decreased presence of the renminbi against crypto Is having significant ramifications on the stability of the crypto market. The exit of Chinese traders have left a cavity in the crypto market that has been slow to fill.

However, with institution trading surpassing retail crypto trading, China’s absence is becoming less acute. “Towards the end of 2017, China set a ban on the trading of bitcoin, and all cryptocurrencies, through domestic exchanges. While it is unclear exactly why Beijing came to this decision, the general consensus is it was to have greater control on the outflow of the Yuan and it may also have had something to do with the development of the country’s own state sanctioned cryptocurrency,”BraveNewCoin reports.

“Following the directive, many Chinese citizens took to international exchanges in order to buy and sell their cryptocurrencies. Due to the fact that the ban was not having the desired effect as Chinese citizens were still able to trade, the country further expanded the regulation to include all exchanges. All websites that are related to cryptocurrency trading, whether they be domestic or otherwise, are blocked in the country.”

“Given China was one of the biggest markets in the bitcoin economy, the regulations did contribute to the drop in the price of bitcoin. Moreover, these regulations led to the closure of a large number of exchanges in the country such as the oldest bitcoin exchange BTCC. While many of these still operate outside of the country, the loss of their Chinese market has led to a significant drop in revenue and relevance.”

“Initially, Chinese citizens gravitated towards acquiring and storing bitcoin because it offered them a hedge against inflation as well as a currency free from government control. Moreover, bitcoin mining gave people a way to supplement their incomes and make use of easily available cheap energy. However, with the increasingly hostile regulatory climate, the Chinese dominance on bitcoin, and the wider cryptocurrency market is diminishing.”

“Having said that, some remain optimistic that the government will lift the ban. BTCC’s co-founder Bobby Lee has expressed his belief that the regulatory climate will change saying: ‘One day I think it’s possible they’ll lift the ban […] and they might reinstitute it and license it.’”

However, it should be noted that since China holds the majority of mined coins and these coins are being traded in currencies other than China’s, China now has a backdoor supply of foreign currency – strengthen its global economic positioning.

 

Payment Service Providers

As TokenMaven puts it: “All cryptocurrency systems have an integrated payment network to process transactions denominated in the native token. While the promise of these systems is that users can independently transact on these networks, there are a variety of reasons why users prefer using service providers. It is interesting to note that while 15 percent of payment companies are domiciled in the United States, only 4 percent are domiciled in China.”

“The use of cryptocurrencies by payment service providers can be grouped into two main categories. Payment rail: use of cryptocurrencies as a channel for fast and cost-effective transfer of national currency (mainly cross-border/international payments, but also intra-country payments). Cryptocurrency payments: provide services to facilitate the use of cryptocurrencies.”

“It may not be always easy to differentiate between these two categories since the division can be blurred as some general-purpose cryptocurrency platforms also enable all payments being denominated in national currencies, and some B2B payment service providers also enable payments being denominated in cryptocurrencies.”

“With the total number of people employed by the cryptocurrency payment service providers globally amounting to 1,057, it translates to the fact that the U.S. has about 159 employees in that sector while China has only about 42 employees.”

“Another important factor to note in the payment service providers sector is that the payment companies based in the U.S. serve a more diverse market since over half of the customers from payment service providers based in the U.S. are not domiciled in the country. In the case of China, 90 percent of customers from the payment service providers are based in the country.”

 

Placed together, one can see how crypto trading in China is a more challenging proposition. Not only is thee rampant government censorship, the idea that China is pursuing its own cryptocurrency turns crypto in China into a zero-sum game.

Despite this, China is the largest crypto mining nation in the world and the implications of this industry has been significant for the country’s most economically depressed areas. Additionally, the semi-autonomous regions of Hong Kong and Macau have become a crypto-safe zone in China, where crypto businesses – despite a premium on coin prices – can find refuge.

“In September 2017, Chinese cryptocurrency exchanges BTCC China, Huobi and OKCoin were ordered by the government to shut down their businesses. At one point, executives of the three cryptocurrency exchanges were prevented from leaving the country, due to a government investigation into local cryptocurrency exchanges,” Coinintelgraph reports.

“Three months later, in December of 2017, China’s three largest cryptocurrency exchanges relocated their businesses to Hong Kong. BTCC China, Huobi and OKCoin rebranded to BTCC, Huobi Pro and OKEx, respectively. They intended to address the rapidly growing demand from Hong Kong-based investors. Shortly after their move, the three trading platforms started to see daily volumes from Chinese investors grow exponentially. Somehow, Chinese investors were managing to circumvent Chinese trading restrictions by using Hong Kong-based exchanges. How is this possible?”

“In Hong Kong, it is relatively easy for investors to set up businesses. With less than $1,000, businesses can be legally created, which allows the opening of business bank accounts at Hong Kong-based financial institutions. Beginning in December 2017, many Chinese investors moved their funds from their Chinese bank accounts to Hong Kong bank accounts and started to trade cryptocurrencies more actively, effectively bypassing China’s restrictions.”

“But, unlike China, Hong Kong has a substantially lower supply to meet the growing demand. While China is home to major miners like Bitmain, Hong Kong does not produce much Bitcoin and other cryptocurrencies. As such, premiums in the Hong Kong cryptocurrency market increased, surpassing even that of the South Korean market. On January 18, when the global average price of Bitcoin was around $11,500, Bitcoin was being traded at above $13,000 on Huobi Pro.”

Crypto can find a way, even in China, it would seem.

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