China’s Reality Check on Cryptocurrency Adoption
Speculation that China may lift its ban on digital-asset trading has been dampened by a recent shakeup at the country’s central bank.
Industry leaders, including Jeremy Allaire, chief executive of Circle Internet Financial Ltd, have seized on Beijing’s tacit support for Hong Kong’s bid to become a crypto hub to argue that the mainland may change its policy. They were reminded of the risks of such extrapolations when Pan Gongsheng was named the top Communist Party official at the People’s Bank of China.
The move could put Pan in the running for PBOC governor and was seen as a signal of policy continuity at the institution, which declared all crypto transactions illegal in 2021. The meeting on Saturday also featured some historic but unusually colorful comments to a Chinese bureaucrat that Pan made during the previous crackdown on crypto.
“If you sit by the river and watch, one day the body of Bitcoin will float in front of you,” he said at an event in 2017, referring to an analysis by Kedge Business School professor Eric Pichet, local media reported. At the time, Pan also defended regulatory action against crypto, claiming he was “a little scared” to think about what would have happened if China had not clamped down on the digital asset.
China’s central bank did not immediately respond to a request for comment on Pan’s views on crypto and the prospect of China’s digital asset ban.
“As far as I know, no PBOC governor supports Bitcoin,” said David Qu, a China economist at Bloomberg Economics with eight years of experience working at the central bank. “What happens in Hong Kong is irrelevant because mainland China generally sees Hong Kong as a foreign market.”
Senior officials outside the central bank are also criticizing Bitcoin, and the government is instead focusing on developing the digital yuan, Qu added.
Crypto Narratives
Crypto is notorious for building stories that skeptics see as exaggerated — the excitement has been evident in both Hong Kong and China forecasts.
Industry mogul Justin Sun, an adviser to digital asset exchange Huobi, has suggested that Hong Kong’s pivot to support crypto foreshadows an easing of China’s ban. Cameron Winklevoss, co-founder of the Gemini platform, said earlier this year that his “job” is that “the next bull run will start in the East.”
In a tweet in May, Changpeng ‘CZ’ Zhao, the founder of the largest crypto exchange Binance, announced the “interesting timing” of the release of a white paper on the digital asset, which appeared in Beijing shortly before the launch of Hong Kong’s new cryptosystem on June 1.
Crypto entrepreneurs like Winklevoss and Zhao have faced aggressive U.S. restrictions in the wake of last year’s digital asset crash and bankruptcies like the FTX exchange. The US position contrasts with the move towards friendlier governance systems in jurisdictions such as Hong Kong, Dubai and parts of Europe.
“Because there is a change of attitude in so many countries, China is unlikely to remain sensitive – it will gradually accept crypto,” said Vanessa Cao, founder of private equity firm BTX Capital.
Beijing’s concerns
Beijing rejected crypto due to money laundering, Bitcoin mining environmental impact and currency outflow. Pan is currently the head of the State Administration of the agency that oversees exchange rate rules and the deputy governor of the PBOC.
While there are signs that some of China’s 1.4 billion people are flouting the ban on digital assets in search of alternatives to distressed investments such as real estate and stocks, crypto activity on the mainland is much lower than previous peaks.
“The Chinese authorities have a typical anti-bitcoin attitude,” said Adrian Lai, founder and CEO of Newman Capital. Newman Capital leads a $50 million Web3 fund in Hong Kong. “There will be no easing of the crypto ban in mainland China now and in the near future.”
Bitcoin was steady on Monday at $30,670 at 9:00 a.m. in London. The largest digital asset is up 85% in 2023, but is far from its 2021 peak of nearly $69,000.
