In a very unexpected twist, the Chinese government has significantly softened its stance on Bitcoin (quotation BTC) and cryptocurrencies with the implementation of cryptocurrency transaction taxes. According to an update shared on Twitter by Tron founder Justin Sun, this move by the Chinese government is an indication that cryptocurrencies are increasingly popular in the country.
First the ban and now the regulation
China is one of the major economies in the world where cryptocurrency transactions have been banned in any form. In 2021, the government banned all forms of Bitcoin mining, in what was the regime's most forceful attempt to crack down on all cryptocurrency-related activity in the country.
At the time, financial institutions had been instructed by the People's Bank of China (PBoC) to stop facilitating cryptocurrency transactions, creating a hostile environment that prompted trading platforms to exit the Chinese market. The country that is the most important for Bitcoin mining has seen its generated hashrate decrease by a significant percentage, giving way to other countries such as the United States, Russia and Kazakhstan.
The whole event had an impact on the entire cryptocurrency ecosystem, as the hashrate dropped significantly and the miners operating in the country started looking for new homes for their miners. Many retail miners have also put their machines up for sale at a relatively low price, out of fear of being targeted by the government.
The cryptocurrency ban at the time was seen as a measure to pave the way for less competition for the Central Bank's digital currency (CBDC), dubbed e-CNY or digital Yuan. While the government has cracked down on cryptocurrencies since the emergence of Bitcoin, the 2021 actions heralded a new era that has seen China become the biggest hub for the emerging cryptocurrency industry.
The change of cryptocurrencies in China
According to Justin Sun's tweet, the new stance on cryptocurrency taxation can only mean one thing for the nation: The government now regards cryptocurrencies as a legitimate form of wealth and wants to ensure they are properly taxed. While there is no clear record as to whether the country has decided to lift its ban on cryptocurrencies, tax policy is expected to start turning the tide for the industry as a whole.
“Fiscal policy should stimulate the adoption of cryptocurrencies in the country, as it provides a clear regulatory framework for individuals and businesses,” Justin Sun tweeted, “As the use of cryptocurrencies in China increases, the government is expected to further regulate the cryptocurrency industry, providing further legitimacy and stability.”
Considering China's role in fueling the instability of the cryptocurrency ecosystem over the past decade, it is doubtful that cryptocurrency leaders are comfortable with the country's renewed stance in embracing the nascent asset class. However, the new legislation comes as a relief to Chinese cryptocurrency investors, most of whom have looked to Hong Kong for their cryptocurrency transactions.
