Opinion: Here are Three Reasons Why China is Afraid of Cryptocurrencies

China’s government has shown its commitment to embrace blockchain, although it has taken a precaution towards cryptocurrencies, as state regulators seek to ensure that average citizens have no access to cryptos. 

Here are three reasons why China is afraid of cryptocurrencies. 

Transactions that flows outside their control 

Cryptocurrencies undermine particular objectives of the Chinese state. Key among them is control of capital outflows and inflows, an essential component of the Chinese economy.  The Chinese yuan is required to remain within a specific range and is regulated by China’s central bank. 

Digital currencies can assist in disrupting that flow, as cryptocurrencies provide an alternative to a currency controlled by central monetary and political authorities.  

Overinflating bubbles 

Cryptocurrencies are volatileas crypto bubbles often could turn into a crash. Recently, the prices of Bitcoin declined for six months after the central bank of China embarked on a fresh crackdown on cryptos, warning the risks involved in trading or issuing them. 

The Chinese central bank mentioned that it would tackle the increasing cases of illegality involving cryptocurrencies. It also warned citizens not to confuse cryptocurrency with blockchain technology. 

The Chinese central bank recently indicated an interest in launching its own digital currency as a way to curtail the growth of cryptocurrencies in the country.   

In October 2019, Chinese president Xi Jinping said that the country would accelerate the development of blockchain technology. Two days after Xi’s remarks, Chinese citizens assumed that the government backing of blockchain and intention to launch a national digital currency would encourage the mainstream to embrace cryptocurrencies. 

However, the government’s plan to launch digital currency sends a clear message to citizens that China embraces blockchain, but not cryptocurrencies like Bitcoin. 

The Chinese government has demonstrated the willingness to adopt blockchain and look forward to designing a national digital currency with some characteristics of a cryptocurrency.   

Potential investment losses 

The Chinese government is also concerned because cryptocurrencies have become an interesting retail investment option for average Chinese investors. The trend fuels rising speculation, something that the Chinese state does not want to tolerate. 

The government is also concerned with the huge prevalence of crypto moguls and businesses that focus on computer power and hardware innovation. This thriving tech sector contributes to a rising economic class, which could be difficult to rein in. China’s central political authorities, therefore, have made it a major aim to curtail the growing tech sector.  

Furthermore, Chinese authorities warned institutions and firms in Beijing not engage in cryptocurrency business. Firms and institutions are also warned not to promote cryptocurrency platforms or projects and not to provide services related to cryptocurrencies. Moreover, investors have also been encouraged to remain rational to avoid deceptions and are urged to report violations of regulations and laws. 

Conclusion 

The idea of blockchain technology is wrapped within central control for Chinese authorities who are always keen to understand and explore new technologies and to appreciate its main benefits in extending their control, from traceability to transparency. 

The centralized, controlled blockchain appeals to the Chinese government, but not the idea of cryptocurrency. The Chinese government is afraid of cryptocurrencies because of concerns of over-speculation, individual liberty, and evasion of capital control. 

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