Crypto Market’s Overreaction to Xi’s Blockchain Remark Prompts Tougher Crackdown

Call it a self-defeating prophecy.

When President Xi Jinping praised blockchain technology as an opportunity that China should pounce on last month, many took it as an auspicious sign for the cryptocurrency market in the world’s second-largest economy.

This rosy interpretation led to the return of speculative fever surrounding not just major cryptocurrencies but also alleged crypto pump-and-dump schemes. 

But that, in turn, has triggered another crackdown by local regulators, targeting exchanges, projects, media as well as blockchain and crypto-themed events – and dashing hopes for a crypto-friendly China. 

After rallying as much as 30 percent within hours of Xi’s speech, the price of bitcoin has fallen back to a level even lower than it was before his remarks and dipped to a six-month low below $7,000 on Monday.

“I’ve called out countless time[s] already the initial pump is totally a[n] over-reaction, so a correction is well expected especially under the known CCP ‘carrot and stick’ strategy.” tweeted Dovey Wan, a founding partner at Primitive Ventures. 

In what has become a defining episode of the clampdown, crypto news site The Block reported last week that Binance’s Shanghai office had shut down. The exchange’s CEO, Changpeng Zhao, initially denied that it even had an office in Shanghai, and took umbrage at the publication’s claim there had been a “police raid.”  

The Block later softened the phrase to “visit by authorities,” but sources told CoinDesk that Binance has indeed had a presence in Shanghai for some time. 

Dragon Television, a Shanghai local broadcast station, aired in a program on Monday night China time that Binance’s Shanghai office was closed and added the office was used by outsourced customer service staff and some developers. 

'Air coins'

The local community was briefly rejuvenated by the leader’s remarks. 

From Nov. 8 to 9, more than 4,000 people attended the World Blockchain Conference in Wuzhen, China, according to the event organizer 8btc. Speakers included representatives from traditional tech firms like Baidu, Alibaba and Tencent, as well as those working in crypto exchanges, funds, projects and mining businesses.

Further supporting an optimistic outlook, a few days after Xi’s speech, the country’s top economic planning agency scrapped a proposal that would have recommended eliminating crypto mining from China, a global hub for such activity.

But then Beijing began tightening the screws.

On Nov. 14, the People’s Bank of China’s (PBoC) Shanghai Bureau issued a notice to local government agencies in each district in the city to inspect and clear out businesses that offer crypto trading, fundraising, promotion and brokerage services. It later officially published the notice on its website, stating that it plans to nip the growing crypto fever in the bud. 

And apparently, this is a nationwide effort. On Thursday, the Shenzhen Municipal Financial Regulatory Bureau issued a similar notice, vowing to crack down on initial coin offerings and fraudulent schemes that use blockchain as a marketing gimmick without any technological substance. 

China Central Television (CCTV), a mouthpiece of the Chinese government, said in an article on Sunday that this is just the beginning as multiple cities including Beijing, Shanghai, Shenzhen, Hangzhou have all started taking similar measures.

To be sure, the crackdown has so far primarily targeted at what the state media called “air coins,” referring to those that are issued out of thin air without any real team or development, as well as smaller exchanges that would pump and dump these coins’ prices.

A Chinese government-backed report last week even claimed that 25,000 out of the 28,000 blockchain firms based in the country issued cryptocurrencies via illegal fundraising channels. 

As a result, multiple state-owned media including CCTV, Xinhua, Economic Information Daily, and Securities Times, have all published news coverage over the past week to their nationwide audience about the return of “air coins” and the country’s crackdown efforts. 

‘Safety concerns’

Meanwhile, trading services of major exchanges by volume such as Huobi, OKEx and Binance, which still serve Chinese investors, have not been affected by the crackdown so far.

That said, there are signs that these trading platforms have taken a step back, at least for the time being, in terms of their operations, marketing and promotional activities.

For instance, OKEx’s official Chinese-language Weibo account had been regularly posting daily updates of cryptocurrency market analysis, announcements regarding listing certain tokens and its Jumpstart initial exchange offering activities. 

Yet since Nov. 14, the firm’s Weibo account has so far been only publishing posts on blockchain 101, and news coverage about blockchain applications.

On the other hand, the official Weibo accounts of Binance and blockchain project Tron, are still suspended, due to user complaints of violating laws, regulations or Weibo’s service terms.

Further, many of the blockchain and crypto-themed events originally scheduled in Shanghai in recent weeks had been either canceled or scaled down, according to two event organizers, who spoke under the condition of anonymity due to safety concerns. 

One organizer said the wave of cancelations was due to either safety reasons or venue providers declined to collaborate amid the crackdown news, even though the events were to discuss blockchain tech and crypto-economics in general. 

The other organizer said events or meet-ups that did go ahead also tuned down the scale by making it invite-only or nixing panels related to trading.

The crackdown on exchanges and projects that are promoting speculation has also led to WeChat’s ban of several accounts that publish content about crypto trading to subscribers. 

So far, the WeChat account of at least three bloggers, literally translated as “One Coin,” “Crypto Bond,” and “Trading Class” are all inaccessible on WeChat. Viewing the accounts’ information leads to a page that states: “Content is inaccessible as this account is banned after WeChat’s review of users’ complaint of the account violating related laws, regulations and policies.”