One of the major causes for the recent fall in cryptocurrency prices this week was the already-known yet dreaded Beijing legislation cracking down on the usage and sale of cryptocurrency. With Beijing banning financial institutions from providing crypto-related services, on top of already-existent cryptocurrency legislation blocking access to cryptocurrency exchanges and websites offering Initial Coin Offerings in 2019, many have seen this as a potential downfall of cryptocurrencies due to China’s importance in the crypto market; particularly in regards to the mining of cryptocurrencies.
However, what in this light seems interesting to discuss is the implications that Chinese legislation on crypto has had on in particular the Chinese crypto community, considering Chinese consumers having shown an increasing interest in particularly Bitcoin in recent months, with over 14.836 blockchain-related companies founded in 2021 thus far compared to around 17.000 of these having been founded throughout the entire year in 2018 and 2019. The question that remains, and is important for the further growth of crypto, is whether this Chinese community will start to disappear, or will find other means to stay invested, or maybe even invest in cryptocurrency.
Going offshore.
An answer to this question could be found in past Beijing legislation regarding another market: that of online betting and gambling. With gambling being outlawed since the Communist Party took control of China in 1949, the Maoist Chinese government seemed to take a stance against this market and have actively forbidden Chinese citizens from participating in gambling both in China as well as in foreign countries. Despite this, however, the Chinese craze for gambling was never curbed in any meaningful way; The SAR of Macau became an increasingly popular destination for gamblers, having overtaken Las Vegas in gaming revenues in 2007. Furthermore, with the increasing advent of the internet, online gambling companies in Southeast Asia have seen massive investment and clientele coming from China (through the usage of VPNs, of course). The Philippines in particular saw a huge increase in it’s offshore gambling market, with at least 100.000 Chinese nationals having moved to the Philippines between 2016 to 2019 just to work for online gambling operators.
With the new regulations now regarding crypto, combined with the inherent nature of Bitcoin being anonymous and, frankly, online, it would be no surprise seeing Chinese cryptocurrency investment simply moving. And this is not only a surprise; it is already happening. With sources from within Chinese mining firms stating that many firms are currently already making arrangements to ship mining rigs to facilities in Canada and the United States, the Chinese crypto mining industry is already making strides at recovering from Chinese regulations. What this shows is a move similar to the Chinese gambling markets during the beginning of the Internet era: a move from mainland China towards lands without regulation.
Was it doomed to happen?
In fact, the move of Chinese miners to countries with particularly lax regulation could just imply an increase in profits and thus, further capital due to China, as of recent, starting to try to cut down electricity usage due to environmental concerns. With provincial governments such as those of Inner Mongolia and Sichuan proposing a further ban on the practice of crypto mining as a whole coinciding with a nation-wide effort to decrease China’s dependence on carbon-based electricity generation, Chinese firms moving to countries where this effort is not as prevalent almost seems logical.
In fact, considering an already-established and aforementioned gambling market catered to Chinese consumers already exists, and is already in-part using cryptocurrencies as a means to make financial transfers from China to online betting sites obscured from the CCP, the move of Chinese mining firms could imply further growth and interdependence between mining firms and betting firms both using crypto, possibly spurring on a growth of Bitcoin amid the over 1 trillion CNY being moved from China to overseas gambling activities every year.
So in many ways, the regulation does not seem to stop China’s craze for cryptocurrency. Rather, it seems that they have found other means to profit off of crypto. This by simply moving away, inspired by the online casinos that did the same. And with a bonding alliance between these two markets in their fight to create loopholes for Chinese consumers, an underground market for cryptocurrency (investment) is, frankly, not as much of a guess as it is a certainty. All that Chinese bitcoin enthusiasts need to do now is just turn on their VPN and find Binance and other Chinese crypto service in seemingly the same place they always were; it’s only the location of the computers that changed after all.
