China recently cracked down on bitcoin, again. The question is: Why now?
The calendar may provide a clue. Thursday is July 1, the 100th anniversary of the Chinese Communist Party. It is at least plausible that Chinese authorities would send a strong warning to the crypto industry in the weeks leading up to this big day.
This theory is already circulating around Chinese crypto circles, at least privately. But those familiar with China will recognize the tense solemnity that leads up to these kinds of events, which may be accompanied by crackdowns on activity that the government views as a threat to shehui wending, or social stability. Cryptocurrency appears to fit into that category.
“The greater context is that China has had enough,” said Bobby Lee, former CEO of early bitcoin exchange BTCC and now CEO of wallet service Ballet and author of “The Promise of Bitcoin.” “China has seen a lot of fraud, illegal fundraising and people losing money on trading.”
“When people lose their money in a market crash, it causes social unhappiness, and that can cause political unrest,” Lee said.
According to Lee, the crackdown’s timing is not accidental. “July 1 is the 100-year anniversary of the Chinese Communist Party. It’s a pride thing. They want to clean up the mess before July 1.” Lee likened it to having to tidy up your bedroom before your father’s birthday party.
The anniversary is a tightly choreographed event in which disruptions are clearly not welcome. The recent crackdown includes shutting down mining and instructing banks to stay away from crypto. China’s moves sent bitcoin’s price plummeting, at least temporarily. The last time China really spooked the global crypto market was in 2017, when it shut down exchanges and banned initial coin offerings. It’s worth noting that China ordered exchanges to shut down in September of that year, shortly before National Day on Oct. 1, which marks the founding of the People’s Republic of China.
‘Protector of society’
This phenomenon is not limited to crypto. In 2018, The Wall Street Journal reported on authorities intervening to keep the stock market steady in the lead-up to the National People’s Congress. One investor told the WSJ his broker told him the Shenzhen stock exchange had deemed his transactions too “disruptive” during a politically sensitive time.
“The word from the exchange was that my trades were too large and too frequent, and I was told it was all because of the National People’s Congress,” the investor said.
The crypto market is notoriously volatile and vulnerable to scams, and Chinese retail investors have been burned by new, unstable industries. The 2018 collapse of the peer-to-peer lending market led to massive financial losses, protests and even death.
“Crypto has grown relatively rapidly in China, it could grow even more,” said Zennon Kapron, founder of Kapronasia, a fintech research and consulting firm. One of the lessons authorities…