It has been said that hindsight is often clearer than foresight, and a bit cleverer, too. A case in point is the recent crackdown by Chinese authorities on crypto exchanges throughout the Middle Kingdom. Press reports were quick to shout, “Blockchain, not Bitcoin”, as if the entire wrath of the government was directed at the world’s favorite digital asset. Based on follow up reporting, however, the raids appear to have been directed at the criminal element behind various fraudulent activities of “bad actors”.
The raids definitely had a specific purpose about them. As subsequently reported by the staff at Decrypt:
It’s pretty well known in the west that China has been hammering crypto exchanges, again, in the worst crackdown since 2017. According to government mouthpiece Xinhua, more than 500 people have been arrested, and more than 300 crypto influencers’ social media accounts have been shuttered.
Sounds as if the government meant business, but the part of the news that never left the mainland was that government officials were not at war with “all” crypto exchanges. Many exchanges were actually immune from attack and have now benefited by the recent crackdown. Exchanges like Huobi, Okex, and even “unassociated” remnants of Binance that had left the country in 2017 were left unscathed.
What then was the Government trying to accomplish? It helps to acknowledge the inference behind a favorite quote within crypto circles in China: “You are not running a good ponzi business if you are not on MXC, aka Matcha Exchange.” While the respectable “Big 3” noted in the previous paragraph are almost household names in Crypto-Land, the MXC exchange has outpaced these giants in China and captured the hearts and minds of thousands of unsuspecting and unsophisticated investors.
Per Decrypt once more:
MXC, which launched in Sichuan in early 2018, describes itself as “more than just an exchange” and claims to be “the world’s leading assets trading platform.” Though the site is available in different languages and claims to be used by investors in 70 countries, it was believed to be especially popular with Chinese retail investors in the third- and fourth-tier cities, where investors are relatively unsophisticated.
This one exchange has also marketed what have been called “air tokens”, a hint at the true value of what the exchange was selling to its loyal fan base. In several “pump-and-dump” schemes, a series of tokens were heavily touted and sold to a public that gave its trust without even the slightest of due diligence. In one notorious case, the value of the VDS token skyrocketed 5,137% in two months, before crashing to near zero at its peak, when promoters withdrew their support and closed positions for enormous gains.
The press covered this and several other such fraudulent practices, where the exchange deliberately hyped a product, created FOMO, and then dropped the hammer:
According to the financial news site Caijing, 53% of MXC’s token projects reached their highest valuation on the first day of trading. Indeed, more than 53% of the projects lost over 90% of that peak value, with more than 70% trading below their initial offer price. Only very lucky investors—or, perhaps, people who were privy to the dumping schedule—made money.
Major exchanges are now working directly with government officials, so as not to step out of line with their own operating activities. The nation’s blockchain fund has actually invested in the Huobi exchange, a sign that the actions of the government are not all inclusive:
But the environment has turned toxic for the smaller, wilder exchanges, who are forced to choose between staying and facing disastrous consequences, or fleeing China.
Many CEOs of questionable exchanges have been reported as “MIA”.
The concluding comments from Decrypt define a more open and receptive environment than had been previously thought, a case where prior reporting could have benefited from “clearer” hindsight:
With investments from the likes of the ShuiMu QingHua BlockChain Fund, it’s way too early to say that the Government has fully embraced “blockchain not bitcoin.” But it has made it clear that air tokens—and the exchanges that promote them—will vanish into the air. Or be suffocated.