Huobi Stands on the Sidelines as China Restates its Regulation

The third-largest Chinese exchange has stripped down its platform after reinforcement of regulations in the country.

By
Chung Yee
on
May 25, 2021
Category:
Blockchain News

Huobi Scales Back

Huobi, a cryptocurrency exchange founded in China and publicly traded in Hong Kong, has taken a conservative approach by scaling down its products and services. This action came after China issued a warning to financial institutions involved in crypto transactions.  

Source


China Cautions Against Risks in the Crypto Market

China, through its state-backed associations, issued a warning for financial institutions to steer clear from cryptocurrency activities last Tuesday. This notice of caution came after Elon Musk announced that Tesla will no longer be accepting payment in Bitcoin citing environmental concerns. The crypto market took a dip, causing wild price volatility across many major platforms. The price volatility was the catalyst for China to remind its citizens against such financial risks. 

Huobi, an exchange having a sizable portion in this space, took action by suspending some of its futures contract trading services, leveraged investment products, exchange-traded products and miner-hosting services in China. It is expected that Huobi will also suspend the sale of mining machines and mining hosting services in China.

Source

Huobi’s action in suspending its product and services relating to mining is critical. China is estimated to contribute to approximately 70% of the world’s mining sites and any regulatory restriction will be a cause for concern. The recent blackout in Xinjiang, a province in China that has extensive bitcoin mining activities saw the Bitcoin network down by no less than ⅓ of its computing power. 


Increased Regulatory Scrutiny

In a statement by Huobi that was quoted in Coindesk, the cryptocurrency exchange said, 

“Due to recent dynamic changes in the market, in order to protect the interests of investors, a portion of services such as futures contracts, ETP, or other leveraged investment products are temporarily not available to new users from a few specified countries and regions” 
“Huobi always strives to abide by the evolving policies and regulations of each jurisdiction to adhere to risk and preserve the well-being of our users and their assets”

Huobi has through its subsidiary, Huobi Technology Holdings Ltd in Hong Kong, managed to obtain the approval from the Hong Kong Securities and Futures Commission to carry out the business as a crypto asset management company. Huobi was priming itself to capitalize on the current crypto bull market, but will have to apply its brakes for the meantime as regulators tighten the restrictions in the country. 


Steps Favoring Digital Yuan 

This action is no different from the steps taken in 2013 and 2017 by the Chinese government. Today with the introduction of the Chinese digital currency (e-yuan), the calls appear to be stronger as cryptocurrencies are gaining traction and are used as mode of settlement. 

China, in reiterating its stance on cryptocurrencies, made it clear that trading, clearing and settlement for digital currencies are banned. This effectively removes digital assets as a mode of settlement. By eliminating alternatives, China created a clear path for the adoption of its digital currency. In support of the argument that cryptocurrency lacks the attributes of money, narratives such as ‘not supported by intrinsic value’ and ‘easily manipulated’ are key phrases that are repeated by the regulators. 


Light at the End of Tunnel

China’s influence in the world economy is no longer moot. The market fluctuation is evident of a vibrant and reactive market. Just like how stocks and commodities are affected by adverse news, crypto assets are no exception. It will be worrisome if news does not affect the crypto market, as that means the community is too small to even see fluctuation. In the meantime, stricter rules and regulations targeted at centralized exchanges will most likely continue. That is why decentralized exchanges may start to see massive adoption, and miners in new locations could capitalize on the newly-opened space.


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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.

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