Chinese authorities reportedly have recently intensified pressure on domestic cryptocurrency activity.
While Beijing supports the development of the underlying blockchain technology, it is still trying to limit speculation in digital currencies roughly one year since banning their sales in "initial coin offerings," CNBC explained.
Bitcoin prices skyrocketed last year as investors bet blockchain could transform the world as much as the internet did. Bitcoin, the world’s most popular cryptocurrency, was trading early Tuesday at about $7,368, down from its December 2017 peak of $18,690. Daily mining revenue was 77% lower than in December, according to Blockchain.info, a data analytics and wallet provider.
While initial coin offerings and venture capital investment both slowed in July, funding for blockchain companies has topped $16 billion this year, a record and more than double the amount raised in all of 2017, according to data compiled by CoinDesk Inc., Bloomberg reported.
China used to dominate bitcoin trading, and still accounts for a majority of bitcoin creation through the "mining" process. But increased regulatory scrutiny, especially as bitcoin's price climbed, culminated in the country's central bank and other financial authorities prohibiting sales of new cryptocurrencies through so-called ICOs early last September. Beijing also effectively banned domestic bitcoin-yuan trading, CNBC reported.
On Aug. 24, five government bodies — the People's Bank of China, the Banking Regulatory Commission, the Central Cyberspace Affairs Commission, the Ministry of Public Security and the State Administration for Market Regulation — issued a warning about risks from illegal fundraising under the guise of blockchain and cryptocurrencies, CNBC reported.
The announcement also targeted those who used overseas servers while luring Chinese investors, CNBC explained.
On Aug. 17, Beijing's Chaoyang District, which includes the central business area, issued a ban on shopping areas, hotels and office buildings hosting promotional events for cryptocurrencies. Chinese news site National Business Daily reported last week that a special economic development zone in the southern city of Guangzhou announced a similar ban.
The Chinese government wants to maintain financial stability, and will regulate activity such as soliciting money from ordinary people for investment, according to Jack Lee, managing director at HCM Capital. HCM doesn't expect regulators to ease restrictions around cryptocurrency investing even though the government has embraced blockchain technology, Lee said.
In a speech in May, Chinese President Xi Jinping called blockchain a "breakthrough" technology. The Communist Party also published in August a book whose title translates roughly as "Blockchain — a reader for cadre leaders."
Meanwhile, three of the world’s largest bitcoin mining equipment makers plan to raise billions of dollars with initial public offerings in Hong Kong, even as other companies report plunging demand for the chips needed to make bitcoin, Reuters explained.
Soaring cryptocurrency prices last year triggered a boom in demand for specialist mining chips and in developing “mines” - facilities with thousands of machines that create the coins by solving complex mathematical puzzles.
Yet the US chipmaker Nvidia Corp. said this month that second-quarter sales to crypto miners totalled just US$18m, compared with $100 million expected by analysts. Nvidia’s chief financial officer, Colette Kress, said she anticipated “no contribution” to revenues from cryptocurrency in coming months.
That has raised concerns about the upcoming Hong Kong listings by three Chinese manufacturers of bitcoin mining equipment, Bitmain, Canaan Inc and Ebang International Holdings.
The companies all design high-end computer chips intended for mining cryptocurrencies, particularly bitcoin, and sell mining equipment containing the chips. In addition, Bitmain mines cryptocurrencies on its own account. Companies like Nvidia also sell specialty chips used for mining.
“The marked decline in the price of bitcoin since the start of the year is likely to weigh on investors’ interest in these companies,” said Benjamin Quinlan, chief executive of financial services consultancy Quinlan & Associates.
But, he added, “the fall in the price of bitcoin from its peaks has not been matched by an equivalent fall in the numbers of people mining it.”
And in the U.S., the U.S. Securities and Exchange Commission rejected another round of attempts to list exchange-traded funds backed by Bitcoin, blocking ETFs from ProShares, GraniteShares and Direxion on concern prices could be vulnerable to manipulation, Bloomberg reported.
In a trio of orders posted on the agency’s website late last month, the commission said proposals to allow the funds failed to show how exchanges seeking to list the products would “prevent fraudulent and manipulative acts and practices.”
The SEC had already denied a request to list a Bitcoin ETF run by twins Cameron and Tyler Winklevoss in late July, citing a similar rationale. In that case, it wrote that the platform that would have listed their fund failed to prove the underlying market was “resistant to manipulation.”
Material from Bloomberg, Reuters and the Associated Press were used in this report.
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