Bitcoin's Ideological warfare with the Chinese Communist Party

In a surprising twist of events, China seems to be changing its tune on Bitcoin. While the country has been known for its restrictive stance on cryptocurrencies, recent legal developments suggest a potential shift in perspective. The Supreme People's Court and Supreme Public Prosecutor have just revised their interpretation of the country's anti-money laundering laws to recognize virtual assets transactions for the first time. The court ruling even described Bitcoin as a unique and non-replicable asset, challenging China's previously anti-crypto position. A layer of legitimacy in China has sparked global interest, making many wonder if China would really go that far as to unban the use of cryptocurrency in the country.

What are the changes to Chinese law

In a 19 Aug conference, the Supreme People's Court and the Supreme People's Procuratorate said that under the revised law, virtual assets transactions will now be listed as a recognised method of money laundering. According to the courts, the transfer and conversion of criminal funds into digital assets will now be covered under regulations that would stop illicit actors from hiding their tracks through the manipulation of digital currencies to launder illicit funds. Under the new regulations, those found guilty of using virtual assets for money laundering face fines ranging from 10,000 ($1400) to 200,000 ($28,000) chinese Yuan and prison sentences of five to ten years, depending on the severity of the offence.

The Chinese authorities are currently closely monitoring the use of virtual assets in money laundering activities, as the country faces an increase in money laundering prosecutions. In 2023, 2,971 individuals were prosecuted for money laundering, a twentyfold rise from 2019. This rise in crime rates highlights the growing scale of financial crime and the desperate need for effective regulatory frameworks.

Is China really going to unban crypto?

This law revision comes at a time amid speculations from a few industry executives that China could be looking to reverse its crypto ban. Galaxy Digital CEP Mike Novogratz tweeted on July 14 that he heard reports suggesting China is "Likely to unban" Bitcoin (BTC) by late 2024. Since then, he has deleted this tweet.

Justin Sun, on the other hand, tweets "China unbans crypto. What is the best meme for this?"

But there are also other industry leaders who think otherwise. YiFan He, CEO of major Chinese blockchain firm Red Date Technology, said that he doesn't think China will ever allow its citizens to freely trade Bitcoin using local fiat currency. Mikko Ohtamaa, the co-founder of algorithmic investment protocol Trading Strategy added that for China to U-turn on its law on crypto would directly contradict the government's political agenda.

China's ideological opposition to Bitcoin

China was one of the first countries to realise Bitcoin's threat to its governance model that revolves over the capital's stronghold over all different aspects of the country, especially its economy. Hence, it isn't that surprising that the country is switching toward the CBDC, which gives the government even more control over the currency and indirectly the economy. With government policy plans of spreading central banking digital currencies and displacing Bitcoin unlikely to reverse, we can thus safely assume that China is unlikely to indicate any policy shifts just yet.

China's transition to CBDC

Another development that people are also looking forward to is China's transition towards its central bank digital currency, the e-CNY. But two years into the launch of its pilot program, the result has been disappointing. The new currency, which is only available in selected cities, has only processed 260 billion USD of value since its inception. This pales in comparison to AliPay, the largest payments processor in China, who has processes 17 trillion USD each year.

But the Chinese government remaisn committed to their CBDC vision, offering lotteries and giveaways to incentivize people to use E-CNY. In addition, a number of new use-cases for currency are being tested and launched for both retail and wholesale users, promising a much faster overseas transfers than the traditional banking system.

How likely will China unban Bitcoin this year?

I think it will be very unlikely for China to unban Bitcoin by the end of the year. China's long legacy of administrating strong capital control over the economy has set in stone a strong set of policies that will be nearly impossible to change. With Xi Jinping likely to hold power until at least 2029, it would take an earth shattering event for him to change the entrenched policy paths without considering the deep ideological fight against Bitcoin within the Chinese Communist Party.