[blusterXY]

Three examples among many:

1. exchanges provide visibility into who is buying and selling crypto along with the ability to integrate crypto activities within real-name systems (i.e. whitelist wallets, etc.). This is the most efficient approach to market regulation as governments simply require exchanges to comply with policies and do not need to code the monitoring infrastructure themselves.

2. exchanges provide an infrastructure for supporting government initiatives -- the Chinese government is developing its own POW-based cryptocoin and has shown an interest in licensing ICOs and taxing transactions. And if China closes down all of the exchanges in the country it is a rather good question how it plans to accomplish either.

3. In the absence of a viable way to operate domestically, Chinese exchanges will simply move overseas (i.e. incorporate in HK), at which point they can continue to serve Chinese customers throughout the world without the need to bother with ANY Chinese policies (such as the elimination of zero-fee trades, KYC policies and data-sharing etc.).

What will happen in crypto is exactly the same thing that happened with video-sharing and group-sales: the government crackdown will be used to push uncooperative companies out of the market, and then licensing requirements will be used to tax those companies that remain while ensuring their compliance with the government fintech agenda. The current back-and-forth is part of an intra-government struggle for political primacy over cryptocurrency activities: the reason the big exchanges are silent is because they have their backers and are working to blunt the impact of these policies on their own businesses and the interests of those with whom they are affiliated. Smaller exchanges without this support are screwed and will close, but that is how China works -- it is not a market economy.