The notice from China harped on how the virtual currency trading platforms were creating the potential for investor harm in a variety of ways. As stated in the joint risk release, ‘They launch zero-interest loans, dual currency financial management and other projects through digital currency mortgages.’ In other words, Decentralized Finance or DeFi, meet the People’s Republic Of China.
And therein lies the issue for China – which is that there is very little interest in ‘decentralization’, and much more interest in seeing the development of blockchain technology and its central bank digital currency as a way of spreading its influence around the globe to push its own agenda.
Meanwhile, for the virtual currency trading platforms, The release, ‘seriously warn institutions and personnel in Beijing that carry out related activities. They must not publicize and promote relevant virtual currency projects or platforms, they must not conduct virtual currency business sales or transactions, they must not engage in virtual currency transactions or disguised trading operations with investors, Acting on domestic and overseas virtual currency issuance and trading activities, financial institutions and non-bank payment institutions within its jurisdiction shall not provide services for any virtual currency transaction.’
Thus, the seriousness of this warning makes it clear virtual currency trading is not welcome in China, and finishes by noting that investors should, ‘maintain rationality … beware of being deceived, and promptly report relevant clues about violations of laws and regulations’. So, investors are then part of the regulatory structure as well in China, encouraged to provide tips to authorities if violations in the marketplace are noticed.
So, as China continues to pour money into the blockchain technology and prepares the release of its central bank digital currency, the country continues what was likely the inevitable, which is to push back on any other virtual currencies that might compete with its national currency.
The U.S. should take note, at a minimum, of the level of proficiency and understanding regulators in China have regarding cryptocurrency and blockchain, particularly in its ability to note how the promotion of blockchain technology can lead to cryptocurrency schemes as a result.