Some crypto holders in China and Hong Kong are scrambling to find a way to safeguard their bitcoin and other tokens after China’s central bank published a new document Friday spelling out tougher measures in its wider crypto crackdown, including souped-up systems to monitor crypto-related transactions.
Bitcoin was down as much as 6% and ether sunk as much as 10%, amid a wider sell-off early Friday, as investors digested the news.
“Since the announcement less than two hours ago, I have already received over a dozen messages – email, phone and encrypted app – from Chinese crypto holders looking for solutions on how to access and protect their crypto holdings in foreign exchanges and cold wallets,” David Lesperance, a Toronto-based attorney who specializes in relocating wealthy crypto holders to other countries to save on taxes, told CNBC early Friday.
Lesperance said the move is an attempt to freeze crypto assets so that holders can’t legally do anything with them. “Along with not being able to do anything with an extremely volatile asset, my suspicion is that like with Roosevelt and gold, the Chinese government will ‘offer’ them in the future to convert it to e-yuan at a fixed market price,” he said of President Franklin Roosevelt’s policy around the private ownership of gold, which was later repealed.
“I have been predicting this for a while as part of the Chinese government’s moves to close out all potential competition to the incoming digital yuan,” said Lesperance.
The People’s Bank of China said on its website Friday that all cryptocurrency-related transactions in China are illegal, including services provided by offshore exchanges. Services offering trades, order matching, token issuance and derivatives for virtual currencies are all strictly prohibited, according to the PBOC.
The directive will take aim at over-the-counter platforms like OKEx, which allows users in China to exchange fiat currencies for crypto tokens. An OKEx spokesperson told CNBC the company is looking into the news and will let CNBC know once it has decided on the next steps.
Lesperance claims some of his clients are also worried about their safety.
“They are concerned about themselves personally, as they suspect that the Chinese government is well aware of their prior crypto activities, and they do not want to become the next Jack Ma, like ‘common prosperity’ target,” said Lesperance, who has helped clients to expatriate in order to avoid taxes, amid a rising crypto crackdown in the U.S.
That said, it’s common for the authoritarian state to lash out against digital currencies.
In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities put a stop to token sales in 2017 and pledged to continue to target crypto exchanges in 2019. And earlier this year, China’s takedown of its crypto mining industry led to half the global bitcoin network going dark for a few months.
“Today’s notice isn’t exactly new, and it isn’t a change in policy,” said Boaz Sobrado, a London-based fintech data analyst.
But this time, the crypto announcement involves 10 agencies, including key departments such as the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security, in a show of greater unity among the country’s top brass. The State Administration of Foreign Exchange also participated, which could be a sign that enforcement in this space might increase.