China’s central bank announced that all cryptocurrency-related transactions are illegal in the country. Bitcoin, Ether, and other cryptocurrencies lost over 5% on the news and then recovered by an already familiar pattern. The People’s Bank of China confirmed its continued crackdown in the entire digital currency space – presumably, in preparation for a lingering launch of digital yuan. How popular the digital yuan would be among the most technologically advanced Chinese people who were at the forefront of all recent crypto space developments is anyone’s guess.

The People’s Bank of China reported in its recent statement that all crypto-related activities are now assumed illegal in China, including services like offering trading of digital assets, P2P (non-market) transactions, token and derivatives issuance, etc. In addition, overseas crypto exchanges providing services in mainland China are now also considered illegal.

Well, it’s nothing new from China. Crypto has been under ever-intensifying scrutiny in 2021 by many world’s most powerful regulators, watchdogs and thinktanks. It’s is especially thanks to them that all people are now explicitly divided between crypto skeptics (crypto haters) and crypto enthusiasts, and no one in-between. Even my mom in her 80s who has never expressed interest in the matter – presumably, like the majority of the elderly people across the globe – is now telling me that “one way or the other, this whole stuff looks like a big deal and it’s going to revolve”. Without this continuing public love-and-hate campaign it’s hard to imagine other ways of gaining publicity in such an efficient way.

CNBC quoted Meltem Demirors, chief strategy officer at CoinShares as saying that “… this has to be the 20th time that China has banned bitcoin. There’s always something ‘different’ about the bans, but this happens all the time and it’s never really dramatic in the larger scheme of things.”

The National Development and Reform Commission said in a separate statement, that China will seek to gradually start shutting down crypto mining operations, and no new mining projects will be permitted. The Celestial Empire’s agencies outlined that China must develop “new systems to counter risks posed by cryptocurrencies”. And this is happening in the depths of Evergrande’s default crisis! Well, apparently, it seems they are not satisfied with the outcome of their previous efforts in cracking down on crypto mining.

Pic. 1. Percent of increase of Google search requests “Bitcoin” by countries in the past 90 days.

Earlier the U.S. Securities and Exchange Commission Chairman Gary Gensler was grilled by the lawmakers in Washington vowing to “work overtime to create a set of rules to oversee the unsettling cryptocurrency markets (while balancing the interests of American innovators)”. Sounds like a tricky but noteworthy mission. Gensler told the Senate Banking Committee that his and his team’s primary goal is to “protect investors through better regulation of the thousands of new digital assets and coins”, as well as to oversee the “more-familiar Bitcoin and Ether markets”. Leading cryptos are now obtaining caring parents across the globe! The SEC chief, however, noted the “enormity of the task” (read: the task is indeed overwhelming), telling Sen. Catherine Cortez Masto, D-Nev., that the regulator could use “a lot more people” to evaluate the 6,000 “novel digital “projects” (“too many to count and still counting”) and “determine whether they all qualify as securities under U.S. law” (“we do really need more people to join us as helpers”).

As I happened to exemplify by historical lessons in my previous pieces, crackdowns and bans have never been tremendously successful. Rather they created markets for accompanying murky services helping people reach the forbidden things. Now demand for cloud mining and various crypto exchange brokerage services is on the rise again. It’s not that we are trying to build some sort of a legal defense case. We see similar things happening all the time: from flourishing illegal immigration and trafficking Cuban cigars to the immortality of offshores and low efficiency of sanctions against government debt instruments unless these governments are in defaults.

The most demonstrable epic failure case is the one where governments tried to stop certain unwanted social networks and messengers. Thus, the blocking crusade against the popular Telegram messenger in Russia was launched by its communications watchdog Roskomnadzor on April 16, 2018.

In October 2017, a Russian supreme court ruled in favor of the plaintiff, FSB, which imposed a fine of the negligible sum of 800 thousand rubles on Telegram developers. The reason was the refusal of the Telegram management to share the electronic keys to decrypt messages from 6 persons accused of committing a terrorist attack in St. Petersburg.

According to Pavel Durov, Telegram’s co-developer, he never confronted, but could not help them, since the mobile numbers of interest to the FSB were either never linked to any Telegram account, or their accounts were deleted due to inactivity. According to Pavel Durov, the requirements of the FSB were impracticable from the technical point of view, to begin with. They also contradicted the Constitution, violating Article 23, which guarantees citizens the right of privacy of correspondence, telephone conversations, and other messaging. In his opinion, the requirements of the FSB would fit into the framework of the law if they were limited only to help in catching terrorists, but the FSB’s request assumed the transfer of universal encryption keys to view the correspondence of an unlimited number of persons, who owned Telegram accounts. On September 26, 2019, Roskomnadzor began testing equipment for deep traffic filtering (DPI) in the Urals Federal District. In late September and October several government and public service websites, including Gosuslugi (a popular and highly rated State Service Enrollment Portal), as well as a popular local social network Odnoklassniki, experienced periods of inaccessibility. Also, due to the incurred blocking of Google and Amazon servers, which were used by many developers, game players were having problems with their PlayStation accounts – in particular, playing Splatoon 2, Guild Wars 2, Guns of Boom, Vainglory, Lineage 2, Revolution and Star Citizen. On June 18, 2020, Roskomnadzor gave up and announced the ceasefire.

As to Bitcoin, its on-chain analytics and recent price movements indicate that the era of ‘price cycles’ and intense volatility may finally be coming to an end. Going forward, user adoption should support Bitcoin’s growth more than anything else.