Chinese arrest 1,100 in crackdown

Reports are emerging from China that the Government has had enough. The Ministry of Public Security said 1,100 people suspected of using cryptocurrencies to launder the takings from various internet and telephone scams had been arrested.

The move comes on the back of bans last month on several groups promoting the exchange, trading and mining of cryptocurrencies. Of particular concern to authorities has been the use of the currencies in illegal gambling sites.

Typically money launderers charge scammers between one and five per cent to convert proceeds to cryptocurrencies. However, blockchain technology within the crypto-world makes it difficult for Governments to track the beneficiaries of laundering.

The Chinese Government has been seeking to reposition the Renminbi as a currency for international trade in recent years. But cryptocurrencies are a significant brake on Chinese ambitions to replace the USD over the longer term. For the Chinese Government, anything that impedes their policy goals is unwelcome.

The US Government has launched several attempts to dampen the currencies allure, including former US Treasury Secretary Steve Mnuchin’s attempt to pass crypto wallet regulations. That move was stymied by a reluctant legislature and poor timing ahead of the 2020 Presidential Election. However, there is little doubt that the transferability and anonymity of cryptos make for an unsettling feeling amongst regulators and bureaucracies keen to track and tax the flow of capital between jurisdictions.

Currently, several unique features of cryptocurrencies act as a handbrake on their wider acceptance. The transaction processing time of crypto’s, when compared to other payment technologies, is painfully slow. Bitcoin processes three to seven transactions per second, compared to 24,000 via Visa. During peak periods, execution costs through Bitcoin can escalate to USD 25, which is not competitive for small transactions.

There is currently no evidence of a move to crypto prohibition. The most obvious way of shutting down the ecosystem would be to make owning a crypto wallet illegal. Like other commodities that have become banned over the years (e.g. alcohol and drugs), the trouble is that crypto may have become too big to fail and too lucrative not to leave and tax.

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