Bitcoin Anonymity Abolishment by China and EU Leads to Price Decline
The crypto market, which showed signs of recovery last week after crashes below $34,000 last month, is facing a new wave of regulatory scrutiny from both China and the European Union.
In China, the People's Bank of China (PBoC) is circulating new guidelines that would require domestic bitcoin exchanges to identify users and report suspicious trading activities to authorities. This move is aimed at tightening surveillance and enforcement on remaining loopholes in the crypto market, potentially reducing black market and unregulated Bitcoin trading inside China.
China still permits crypto mining but considers transactions and trading activities involving cryptocurrencies like Bitcoin illegal financial activities due to risks to user asset safety. Zhou Xuedong, director of PBoC's Business Administration division, has suggested the creation of blacklists against exchanges that do not follow PBoC's directives.
Meanwhile, in the European Union, members of the European Parliament are deliberating new legislation to end the anonymity of cryptocurrency and allow "competent authorities... to monitor the use of virtual currencies" in order to fight money laundering and terrorism. These regulations will align with international Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) efforts, potentially reducing illicit use of Bitcoin by making anonymous transfers more difficult and increasing traceability.
The combined effects of these regulations are likely to have significant impacts on Bitcoin markets. Greater identification requirements and transparency will likely deter illicit or privacy-concerned users from Bitcoin, reducing its appeal for certain types of transactions. Reduced anonymity and higher compliance costs might shrink some trading volumes or push activity to less regulated jurisdictions, impacting liquidity and potentially increasing Bitcoin price volatility.
However, enhanced regulation can also bring legitimacy, attracting institutional investors who require compliance guarantees. Fragmented regulations across regions (China’s strict ban and EU’s compliance-focused approach) may drive competition among exchanges and service providers to innovate in privacy-preserving but compliant technologies.
For more information, readers can refer to the articles discussing these developments in CoinDesk, Thegeopolitics.com, and Token Post. The author, Sergei Tokmakov, can be reached at [email protected]. The article includes a photo of the author.
[1] CoinDesk (2021). China's central bank proposes new guidelines for crypto exchanges. [2] Token Post (2021). Why the Bitcoin bubble will not burst due to a potential ban in South Korea. [3] Thegeopolitics.com (2021). Impact of geopolitical tensions on the cryptocurrency market. [4] PBoC (2020). Digital Currency Research Institute.
Investors should be aware that the cryptocurrency market, particularly Bitcoin, is facing increased scrutiny from China and the European Union, which could impact its attractiveness to privacy-conscious users. The new regulations in these regions are intended to tighten control over the market, reduce black market activities, and fight money laundering, but they may also increase transparency and legitimacy, potentially attracting institutional investors.
