Brand new reports today show that Chinese authorities are widely cracking down on cryptocurrency, holdings suggesting that money laundering has tainted thousands of citizens’ accounts.
Caught up in a police probe since last Thursday, some Chinese crypto buyers and sellers and OTC market makers have already had accounts frozen because their transactions may have been contaminated by money laundering activities involving cryptocurrencies,” writes Wolfie Zhao for Coindesk. “The affected crypto users aren’t necessarily accused of any wrongdoing, and the incident raises the wider question of the quantity of cash and crypto assets that has been contaminated by illicit activity. It’s a concern because OTC desks are the only fiat currency on-and off-ramps for China-based crypto users who do not have overseas bank accounts.”
Read through the reports at Coindesk and elsewhere, and you’ll see that the allegations of crypto fraud contamination are fairly vague. This kind of punitive activity also goes against the grain of comments months ago by Chinese President Xi Jinping that lauded blockchain as emerging tech.
China is going ALL IN on blockchain and the cryptocurrency markets are moving up because of it,” says Crypto Bobby, preceding a video in which he talks about Chinese blockchain hypocrisy. “Not only that, but people around the world are praising China for their innovative and entrepreneurial spirit! But is all that glitters gold (or Bitcoin) with China? NOPE and let’s talk about why…”
The big picture here is that even though the Chinese might seek to control blockchain in numerous ways, like this kind of spontaneous crackdown, at the same time the country is racing toward a central bank digital crypto currency, a digital yuan, that could have confounding effects for the global economy as a whole.
Some analysts suggest that if the US didn’t like Libra, it’s going to like the Chinese central bank digital coin much less.
“U.S. regulators have vast power not only over domestic entities but also over any financial firms that need access to dollar markets, as Europe recently learned to its dismay when the U.S. forced European banks to comply with severe restrictions on doing business with Iran,” wrote Kenneth Rogoff in November at MarketWatch. “America’s deep and liquid markets, its strong institutions, and the rule of law will trump Chinese efforts to achieve currency dominance for a long time to come. …Control over the underground economy, however, is another matter entirely … a widely used, state-backed Chinese digital currency could certainly have an impact, especially in areas where China’s interests do not coincide with those of the West.”
Keep this in mind when watching China do any cleanup of the crypto world: soon, the digital yuan may be transforming parts of a less regulated fintech world in ways that may change markets and unsettle would-be market controllers.