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How effective is China's cryptocurrency trading ban?

Author

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  • Chen, Conghui
  • Liu, Lanlan

Abstract

Cryptocurrency trading is subject to strict government-imposed restrictions in China since September 2017, when trading platforms were shut down. Using a VAR-GARCH-BEKK model, we investigate the effectiveness of this trading ban by examining its consequences on the relationship between Chinese investors’ attention and Bitcoin. Our results demonstrate that Chinese investors played a dominant role in the Bitcoin price formation before the ban, and that their influence has not significantly decreased after the shutdown of Chinese trading platforms. Aiming to explain our findings, we provide strong evidence that the crackdown on Bitcoin trading has not been effective as Chinese investors continue to purchase Bitcoin using the stablecoin Tether instead of Chinese yuan.

Suggested Citation

  • Chen, Conghui & Liu, Lanlan, 2022. "How effective is China's cryptocurrency trading ban?," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004189
    DOI: 10.1016/j.frl.2021.102429
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    References listed on IDEAS

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    Cited by:

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    2. Griffith, Todd & Clancey-Shang, Danjue, 2023. "Cryptocurrency regulation and market quality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 84(C).
    3. Xie, Wenhao & Cao, Guangxi, 2024. "Volatility and returns connectedness between cryptocurrency and China’s financial markets: A TVP-VAR extended joint connectedness approach," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    4. Joshua S. Gans, 2024. "Cryptic Regulation of Crypto-Tokens," Entrepreneurship and Innovation Policy and the Economy, University of Chicago Press, vol. 3(1), pages 139-163.
    5. Li, Dong & Han, Yushu, 2023. "Media attention and large shareholders' embezzlement behavior," Finance Research Letters, Elsevier, vol. 57(C).
    6. Zhong, Yufei & Chen, Xuesheng & Wang, Chengfang & Wang, Zhixian & Zhang, Yuchen, 2023. "The hedging performance of green bond markets in China and the U.S.: Novel evidence from cryptocurrency uncertainty," Energy Economics, Elsevier, vol. 128(C).
    7. Cao, Guangxi & Xie, Wenhao, 2022. "Asymmetric dynamic spillover effect between cryptocurrency and China's financial market: Evidence from TVP-VAR based connectedness approach," Finance Research Letters, Elsevier, vol. 49(C).

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    More about this item

    Keywords

    Chinese Bitcoin trading ban; Investor attention; Tether; VAR-GARCH-BEKK;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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