This week China is back to work after its week-long national day celebrations, an event that is always filled with flag-waving, military parades and enthusiastic nationalism. This year’s version was intensified by the recent homecoming of Huawei executive Meng Wanzhou after three years of detention in Canada, as well as heightened tensions in the Taiwan Strait. Government regulators have spent the better part of the last half-year wiping out the cryptocurrency industry in the mainland, a topic that has given the Shanghai Man plenty of topics to discuss in this weekly column.
Limited access to markets
On Wednesday, Binance took a step towards compliance by announcing it would be closing P2P for RMB markets. According to the announcement on Binance’s website, the change will happen on December 31, 2021. Meanwhile, it will check for users from the mainland of China and switch their accounts to a withdraw-only mode. At the same time, users will only be able to withdraw, close positions, and other essential functions. Binance will notify corresponding users by email 7 days before the account switch.
The news was not well-received by the remaining retail holders, who feel that fewer and fewer reliable off-ramps are available without resorting to more drastic measures such as offshore accounts. Binance had been one of the most popular P2P markets, due largely to the reputation of the exchange, its liquidity, and Binance’s geographic distance from Beijing. Binance has always maintained that its website was blocked in China and it doesn’t have an exchange business presence here, therefore it was exempt from mainland regulatory policy.
There’s no denying that a lack of P2P fiat options will make investing in crypto a lot less comfortable for Chinese citizens living in mainland China. With the eCNY central bank digital currency right around the corner, tighter fiat regulations might make it hard to move large amounts of fiat in and out of the crypto markets. On the other hand, many people are less concerned, knowing that OTC markets will spring up whenever there is an opportunity to provide an in-demand service. Technology always has a way of developing where it is needed the most.
Reading between the lines
The move seems quite severe on paper, but there are still a few grey areas that need to be examined. It’s no secret that going into this year, millions of Chinese users were registered on top exchanges and many of them were active traders and large holders. Some of them will likely be deterred by recent government policies and exchange rules, and reduce their exposure to the asset class. Others are actively being funneled into DeFi, as evident by the rising on-chain trading volumes coming from China.
Other users will simply elect to wait, especially considering the rapidly-changing nature of national policies. One common belief is that exchanges that elect to self-regulate may not actually enforce this policy very strictly at first. This is supported by the lack of clarity on how overseas Chinese users should be handled. Users may be able to circumvent rules altogether by supplying proof of international residency or alternative forms of ID. The silver lining here is that any sell pressure caused by uncertainty or fear from Chinese investors will be dampened by a long transition period of compliance.
For a company that operates completely outside of China, it’s very difficult for regulators to enforce policies, especially if the exchange is claiming to self-regulate, by banning IPs, and not accepting new Chinese registrations. This is the strategy that exchanges such as OKEx and Gate.io seem to be following, as both of these large platforms with Chinese roots announced that they were already fully compliant, didn’t accept Chinese users, and as a result wouldn’t be making any drastic changes.
Gate announced its policy without emphasizing the removal of existing mainland Chinese users. https://t.co/q3yYLMX0Wp
– Wu Blockchain (@WuBlockchain) October 13, 2021
A prominent social media Influencer on Weibo wrote:
“The content of this announcement is a bit strange. I think the exchange will conduct a self-check and try to discover the remaining Chinese users on the platform, but in the case after the self-check the exchange announces there are no Chinese users, the exchange will just leave them there.”
This post was later deleted on Weibo. Currently, all topics related to Binance and other exchanges are censored by social media apps like WeChat.
Perhaps the most surprising takeaway from all this was the market indifference to the news. Previous announcements of this magnitude have had very pronounced effects on the market price. On Wednesday, following the announcement by Binance, the BTC price dipped briefly before bouncing back to over $58,000 the following day.
What this shows it that the market is putting less weight on the impact of news coming out of China, instead focusing on narratives like the hoped-for upcoming ETF approvals in the US and Vladimir Putin’s surprise admission about cryptocurrencies. Investors can take solace in the fact that with more growth and decentralization, the market risk is more diversified.
The right to enforce
On October 11, the financial magazine Caijing put out a story discussing the enforcement of the recent crackdown on cryptocurrencies. The main points were that the recent announcements from the Central Bank were merely guidance and that actual judicial interpretation and enforcement needed to come from the public prosecution authorities in the court system. The article implied that judicial bodies were now conducting research into the legality of mining and cryptocurrency businesses, and that this could spell trouble for rule breakers. Those who had currently succeeded in skirting the rules might not be out of hot water, yet.