Speaker 1: This is Bloomberg Crypto at daily Bloomberg. I heart podcast
Speaker 1: and I'm Stacy Marie Ishmael, managing editor of Crypto for
Speaker 1: Bloomberg News. It's Friday September. This September marked the one
Speaker 1: year anniversary of China declaring the crypto transactions were effectively illegal.
Speaker 1: At the time, the decision triggered sharp declines in Crypto markets,
Speaker 1: even though it wasn't entirely unexpected news, because it wasn't
Speaker 1: the first time that China had sold to crackdown on CRYPTO.
Speaker 1: That's been happening in one form or another since at
Speaker 1: least two thousand thirteen. Still, declaration prompted some pretty swift
Speaker 1: and significant changes. Among the biggest of these was the
Speaker 1: effect on bitcoin minors, who left China in droves. Many
Speaker 1: of them set up shopping places like Texas in the US.
Speaker 1: To better understand the state of CRYPTO and China, we'll
Speaker 1: talk to Bloomberg reporters Uihi Yang The verall takeaway is
Speaker 1: China is becoming less relevant in the global cryptal community
Speaker 1: and David Pan the cryptal minors were definitely scrambling to
Speaker 1: get their mining machines out of China and we'll hear
Speaker 1: from Winston Ma. You know, China's crypto regulation is very
Speaker 1: compressive and essentially it prohibits cryptal mining, trading and transactions.
Speaker 1: A venture capitalist at cloud tree ventures and the law
Speaker 1: professor at New York University Law School, David U, is
Speaker 1: always a pleasure to have you in the studio. Around
Speaker 1: this time last year, China decide that for real, actually officially,
Speaker 1: they were going to declare all forms of CRYPTO transactions
Speaker 1: to be illicit. Chinese regulators of Jumato have been talking
Speaker 1: tough for months, but on Friday they released a missive
Speaker 1: that removed all doubt. It wasn't just a central bank,
Speaker 1: it was also nine regulatory agencies, and they specifically called
Speaker 1: out offshore exchanges, targeting Chinese users, banning them from hiring
Speaker 1: locally for roles that rang. Now, this was not the
Speaker 1: first time that China had started cracking down on crypto.
Speaker 1: It wasn't even the second time, but it did seem
Speaker 1: to be the most significant, not least because that band
Speaker 1: came with threats of like criminal penalties and other things
Speaker 1: that didn't really sound fun at all. And so, David,
Speaker 1: I'd love to start with you on in the days
Speaker 1: that followed that declaration. What happened to the crypto minors
Speaker 1: and why were so many crypto minors in China in
Speaker 1: the first place? The crypto minors were definitely scrambling to
Speaker 1: get their mining machines out of China because some of
Speaker 1: these local governments by enforced the law. Essentially they were
Speaker 1: literally confiscating the the mining ricks from all of these
Speaker 1: mining farms. So they were rushing to like ports like
Speaker 1: in Shinjin in south China. You know, they they were
Speaker 1: trying to find any possible way to resell their use
Speaker 1: the machines to other parts of the world, you know,
Speaker 1: like the US. Were even Central Asia, Eastern Europe and
Speaker 1: anywhere you can possibly think of, and were they selling
Speaker 1: the machines where? They're trying to get those machines to
Speaker 1: those places so they could use them again. Like what
Speaker 1: was happening? I'm a minor in China. This declaration comes down.
Speaker 1: What do I do next? First, they have to unplock
Speaker 1: millions of mining machines. So that was the thing they
Speaker 1: had to do because the national gride in China, the
Speaker 1: regulators were able to monitor the electricity usage of the
Speaker 1: bitcoin mining farming, especially the large scales, large scale, big
Speaker 1: in mining farms, because there's really easy to spot them
Speaker 1: on the grid. So they had to close down all
Speaker 1: of these farms first, otherwise they're going to be put
Speaker 1: into jail according to this new declaration. So they did
Speaker 1: that and then they started thinking about how they can
Speaker 1: transfer their mining operations from China to places like Texas, Russia,
Speaker 1: you know, all of these other places. U Really I'd
Speaker 1: love to get your perspective on what it meant for flows,
Speaker 1: transaction volumes. You know, in addition to China having been
Speaker 1: a mining hub, they were arguably, for a while like
Speaker 1: the center of CRYPTO transactions in the corners of the
Speaker 1: markets that you cover. What were some of the effects
Speaker 1: of this band? So we know that historically there's a
Speaker 1: like you said, there's a large community of Chinese speaking
Speaker 1: crypto founders, investors, users and after the band in China
Speaker 1: and the correct in China and crypto volumes had tipped
Speaker 1: and China fell out of the top ten ranking of
Speaker 1: global cryptal adoption index by train analysis. But then this
Speaker 1: year China analysis said that China has re entered to
Speaker 1: the top ten after placing as the number of thirteens
Speaker 1: in one and then this index showed that either the
Speaker 1: rules in China are not strictly enforced or there are
Speaker 1: just people who are still able to circumvent the rule
Speaker 1: using VP N and still participate in these cryptal services.
Speaker 1: So I think when we talked to Chinese cryptal founders
Speaker 1: and investors, the overall takeaway is China is becoming less
Speaker 1: relevant in the global cryptal community, but the Chinese diaspora
Speaker 1: are not. They're still very active, a lot of them.
Speaker 1: There's still a lot of those folks who did move,
Speaker 1: they did leave the country. Are you hearing from any
Speaker 1: of them that they are media plans to, you know,
Speaker 1: to your points about whether the rules are being less
Speaker 1: and as the people are just getting, you know, clever?
Speaker 1: Are they looking at setting up again in China, or
Speaker 1: is this do you feel like we're kind of at
Speaker 1: a stage where it's like, nope, we're here, this is
Speaker 1: the plan, this is how we're moving forward. So I
Speaker 1: think there are two groups of people making two totally
Speaker 1: different types of choices. Even though China crackdown on Crypto
Speaker 1: blockchain technology is still encouraged in China and there are
Speaker 1: efforts to find more use cases in blockchain in China
Speaker 1: an F T as a digital collectible. It's also allowed,
Speaker 1: even though you can't really trade them on the secondary market,
Speaker 1: and therefore make it just fundamentally very different from the
Speaker 1: N ft in the rest of the world. But there
Speaker 1: are companies and even the state media, Shinhua, they issued
Speaker 1: an Ft. so there are efforts like that that are
Speaker 1: still existing in China. So there's one group of people
Speaker 1: who would say that I want to stay in China
Speaker 1: and I want to bet on this parallel version of
Speaker 1: webs three in China that's kind of cut off from
Speaker 1: the rest of the world and then has its own rule.
Speaker 1: The block chains are usually permissioned. And then the second
Speaker 1: group will be the ones that we talked about that
Speaker 1: are moving out of China. They are still active in
Speaker 1: the global crypto community, but they're operating from Singapore, Dubai,
Speaker 1: the US, Um Europe and other places. David, I want
Speaker 1: to go back to you. You know, a lot of
Speaker 1: your reporting has been around the fact that the folks
Speaker 1: running these companies got out of China, got their equipment
Speaker 1: out of China, or mostly got their equipments out of
Speaker 1: China and went to Lubbock or, you know, somewhere else
Speaker 1: in Texas or went to Kazakhstan and other places and
Speaker 1: ran into some unexpected challenges. What were some of those challenges?
Speaker 1: I think they are still facing a lot of challenges
Speaker 1: as of now. One of the biggest the ones that
Speaker 1: will be the connections. Like you know, they don't have
Speaker 1: to connects to begin with. For example in China that
Speaker 1: didn't have to purchase power like you know, formal like
Speaker 1: agreement with the legal recourse. But like in Texas, they
Speaker 1: have to find brokers, they have to find suppliers and
Speaker 1: big established legacy energy companies to work with, and so
Speaker 1: they have to find those kind of partners locally. In
Speaker 1: Texas they didn't have that kind of relationships. So that's
Speaker 1: a very big DISTU the meantage compared to the local miners,
Speaker 1: you know, such as riot and Marathon, all of this
Speaker 1: US based mining companies. You know, it strikes me, as
Speaker 1: we're having this conversation, that's so similar to what folks
Speaker 1: who tried to set up like manufacturing in Michigan or
Speaker 1: these other intersections where they were clearly like incumbent US
Speaker 1: companies that had been doing things. And we're running into
Speaker 1: differences in language, differences in you know, even just like technology,
Speaker 1: the ways of doing things, are any of those kinds
Speaker 1: of elements also affecting the ability of Chinese miners to
Speaker 1: unseat the local incumbents, as it were, exactly. I think
Speaker 1: that is a really big problem. I think there was
Speaker 1: a documentary about like the Chinese factory was like a
Speaker 1: culture shock between the Chinese companies and the local employees.
Speaker 1: That kind of scenario is exactly playing out amount the
Speaker 1: Chinese mining companies as well. For example, one big mining
Speaker 1: company CEO told me like when they went to like
Speaker 1: mid Western states like Ohio and when they set up
Speaker 1: the shop there and they realized that the American workers
Speaker 1: take way too many vacation days, whereas all of their
Speaker 1: Chinese colleagues were working around the clock and then try to,
Speaker 1: you know, finish the construction, tried to build out infrastructure.
Speaker 1: So for them, I think it was definitely something they
Speaker 1: hadn't anticipated when they decided to move to the US,
Speaker 1: like in the middle of the US. I help but
Speaker 1: laugh at the idea that Americans have a lot of
Speaker 1: vacation days because, having moved here from London, where it's
Speaker 1: just like all vacation days all the time, I'm frankly
Speaker 1: stunned that, but you know, you learn. You learn something
Speaker 1: new every single day. I feel like this is one
Speaker 1: of the more interesting, kind of useful and nuanced episodes
Speaker 1: that we've been able to have on the show so far.
Speaker 1: So thank you both for taking the time. I really
Speaker 1: appreciate it. Thank you. Thank you. You can find more
Speaker 1: of their reporting on the Bloomberg terminal, on Bloomberg Dot
Speaker 1: Com and on twitter. Uh is at UH underscore Yang.
Speaker 1: That's why U E Q I underscore y a n
Speaker 1: G and David is David underscore pan one. That's D
Speaker 1: A v I D P A N underscore one. Up Next,
Speaker 1: more on the consequences of China's approach to Crypto with
Speaker 1: Winston Ma of cloud ree ventures. Winston, what a delight
Speaker 1: to have you on the podcast. Thanks very much for
Speaker 1: having me. Well, let's talk about two of your books,
Speaker 1: the one that you just published about blockchain and web
Speaker 1: three and an earlier one with the kind of the
Speaker 1: provocative title of the digital war, about the sort of
Speaker 1: the standoff, as it were, between the Chinese approach to
Speaker 1: tech and the US approach to tech. How are you
Speaker 1: seeing this all play out in the universe of blockchain
Speaker 1: and web three. Great question to me. You know, the
Speaker 1: the evolution of the titles actually represents the evolution of
Speaker 1: China's tech development as well as the corresponding interaction with
Speaker 1: the US. You know that the book the Digital War
Speaker 1: was a sequel to my earlier book book China's mobile economy. And,
Speaker 1: as that suggested, right UH was a year of China's
Speaker 1: mobile revolution. So the so the focus at that time
Speaker 1: was all about smart phone, mobile payment and the mobile
Speaker 1: e commerce. But from there, you know, China started to
Speaker 1: shift its focus from Internet development into hard technologies such
Speaker 1: as the Ai Blockchain, cloud computing, data centers, et CETERA.
Speaker 1: You know that that's why my book had the title
Speaker 1: the Digital War. How China's tech power shapes the future
Speaker 1: of AI, Blockchain and the cyberspace, now relating to the
Speaker 1: blockchain web three topics. So you could say that blockchain
Speaker 1: web three is a new frontier of the U S
Speaker 1: and the China Tech Competition. Now on your earlier book,
Speaker 1: the Digital War, you know one of the things you
Speaker 1: had in the cover was the logo for Tiktok, which
Speaker 1: is owned by bye dance and, other than being probably
Speaker 1: the most popular APP in the world is at the
Speaker 1: center of an escalating political battle, you know, with both
Speaker 1: Republican and Democrat officials in the United States sort of,
Speaker 1: you know, making loud noises around whether it's appropriate for
Speaker 1: Tiktok to be owned by a Chinese company. There are
Speaker 1: no existing Chinese owned tech companies with a kind of
Speaker 1: a metaverse focus, or defi focus and n f t focus,
Speaker 1: that are as big in the US as Tiktok is.
Speaker 1: But do you see a world in which there is
Speaker 1: like sort of a crypto tiktok equivalent coming out of China?
Speaker 1: Not In the near term because, as this time you know,
Speaker 1: China's crypto regulation is very compressive and century. It prohibits
Speaker 1: crypto mining, trading and transactions. So in other words, you know,
Speaker 1: in China there's a broad band Um crypto usage in
Speaker 1: the financial systems as well as in daily transactions. So therefore,
Speaker 1: the metaverse development in China is going through a very
Speaker 1: different path. Mostly, importantly, it is token list or you
Speaker 1: could say it cryptolists. What are the other elements of
Speaker 1: being crypto less in kind of the Chinese blockchain? The
Speaker 1: N F T is a good example of this cryptalist thing,
Speaker 1: because n f t means nonfundable Tokens, right. So. So
Speaker 1: when when the N ft term includes the reference to
Speaker 1: token and the empty trading market sees exponential growth of volume,
Speaker 1: it is hard to imagine that n f t s
Speaker 1: can develop in China with to being associated with cryptocurrency
Speaker 1: and its related regulations. That's why n teas are called
Speaker 1: digital collectible in China, to downplay the token aspect, the
Speaker 1: currency aspect, and also, as you mentioned, the regulations limit
Speaker 1: the second hand trading of an F T s. One
Speaker 1: of the things I'm always struck by is how in
Speaker 1: China and on Chinese APPS, in the Chinese APP ecosystem,
Speaker 1: those are often all things you can do in like
Speaker 1: one single APP, right like there's no need to have
Speaker 1: exactly it's you know, here in New York I might
Speaker 1: have a door, dash, an Amazon, an Uber, whereas in
Speaker 1: if I'm in Beijing, I felt like one APP. I
Speaker 1: can do all of those things at the same time.
Speaker 1: Are you seeing a similar trend with, you know, metaverse, blockchain,
Speaker 1: digital collectibles being rolled into those big super apps? I
Speaker 1: totally think so. In I know it's a very natural development.
Speaker 1: You could say it's like a super APP going next level,
Speaker 1: right because, as you said, in the early years of
Speaker 1: the mobile economy, Chinese companies were already focusing on building
Speaker 1: up super APPs, hoping that they can keep as many
Speaker 1: users in their ecosystem for as much time as possible. Right. So,
Speaker 1: when you look at Ali Baba's e commerce APP, essentially
Speaker 1: it's a combination of almost like one hundred small APPs.
Speaker 1: So the concept is, you know, you can do everything
Speaker 1: in one APP. One kind of as a closing maybe
Speaker 1: super existential question, you know, in in places like the US,
Speaker 1: in Europe, one of the big propositions of blockchain is
Speaker 1: this resistance to government surveillance. How is that shaping how
Speaker 1: people are thinking about the utility of the blockchain in China?
Speaker 1: I think for for users, the data privacy is truly
Speaker 1: an important issue and it becomes even more urgent as
Speaker 1: we move into the metaverse. So for users they have
Speaker 1: to deal with the privacy issues with the big text
Speaker 1: platforms as well as the digital infrastructure support suppliers. In China,
Speaker 1: because of the CRYPTO regulations, the government does not support
Speaker 1: public blood chains. So for N F T place, for
Speaker 1: gaming assets place right they have to be executed blood
Speaker 1: chains that are regulated by the government and now in
Speaker 1: the in the US, right the users can use the
Speaker 1: park brood chains, which tends to be less centralized, even though,
Speaker 1: you know, maybe blood chain of the bitcoin is the
Speaker 1: only blood chain that's truly decentralized. However, we could say
Speaker 1: in general the public broad chains are more decentralized. But
Speaker 1: but still, you know, you have other data privacy issues
Speaker 1: as well. For example, you know, all the data are
Speaker 1: still held in three for major cloud cloud platforms like
Speaker 1: the Amazon, Google, Microsoft, of those guys, right. So, so
Speaker 1: you see, uh, it's a multi layer issues and I
Speaker 1: think for the individual users not only there for their
Speaker 1: data privacy. You know, not only they're looking for public
Speaker 1: broaches but also a more comprehensive data privacy solutions relating
Speaker 1: to uh, data storage and management. Well, thank you so
Speaker 1: much for being on the podcast. I feel like I
Speaker 1: have certainly learned a lots and I hope our listeners
Speaker 1: have as well. Really appreciate you taking the time. Thank
Speaker 1: you very much. That was Winston Ma of cloud reventures.
Speaker 1: On the next episode of Bloomberg Crypto we're going to
Speaker 1: talk about exchange traded funds and specifically Crypto et F S.
Speaker 1: There's some interesting and perhaps unhelpful stuff. That's hoping with
Speaker 1: their performance these days, and you'll hear more about that
Speaker 1: on the next episode. This is Bloomberg Crypto, a daily
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Speaker 1: Our senior producer is Janet Babin. Our producer is Sharon
Speaker 1: burrieral associate producer is thy Butler. Desta wonder at is
Speaker 1: our engineer. Original Music by Leo Sidrin. I'm Stacy, Marie Ishmael.
Speaker 1: Have a great weekend.