Recent Crackdowns in China, Effects, and Things to Expect from the Crypto Market.
On September 24th, fears over money laundering and betting frauds prompted China’s Central Bank to designate all cryptocurrency-related transactions. The statement triggered a significant dip in markets, with some players rushing to sell their investments. The value of Bitcoin dropped over ten percent after the news, before rapidly reclaiming some of its lost value.
PRC’s Official Position in the Run-Up to the Crackdown
The People’s Republic of China has always been suspicious about cryptography. The country outlawed the use of Bitcoin by banking institutions in China as far back as 2013.
The Chinese government outlawed ICOs (Initial coin offerings) in 2017, the cryptocurrency equivalent of an IPO, in which a crypto firm sells tokens or coins to generate funds. ICOs have been recognized as an unlawful type of fundraising by the People’s Bank of China, the State’s central bank.
China has lately targeted cryptocurrency-mining businesses within its territory. The Chinese state planner indicated an interest in prohibiting crypto mining in 2019.
Early this year, the People’s Republic of China made cryptocurrency mining illegal in some regions, such as Sichuan, the hub of cryptocurrency mining. The impact of the prohibition on e-CNY, China’s state-supported virtual currency, is yet unknown.
What Role Does China Play in Crypto Mining?
Up to this point, China has accounted for the majority of global cryptocurrency mining, with the United States being a faraway second.
According to the University of Cambridge, China accounted for forty-seven percent of all cryptocurrency mining as of April 2021. In that same period, the United States accounted for 16.8 percent of all cryptocurrency mining worldwide.
That is expected to change shortly. A cryptocurrency-mining relocation was already in progress before the formal declaration. Officials in the Chinese region of Inner Mongolia confiscated more than ten thousand laptops that were particularly modified for cryptocurrency mining just days after the State made the announcement, according to Coindesk.
Will Cryptocurrency Prices be Affected by the Chinese Crackdown?
“China FUD” started trending on the microblogging platform, Twitter, after China’s formal declaration outlawing virtual currency. Several people quickly pointed out that earlier Chinese remarks concerning cryptocurrency had caused “doubt, uncertainty, and fear” but that these declarations were accompanied by short-term declines and it should not be taken as seriously.
Immediately after the PBOC’s Q&A, the value of Bitcoin dropped by four percent in twenty-four hours and is now valued at approximately $43,020. Ether is presently trading at approximately $2,973 after falling six percent.
The first workday of the following week saw an increase in the value of Bitcoin. It subsequently returned to its pre-announcement level after that.
What Effect Will the Crackdown Have on Crypto Exchanges?
China’s prohibition applies to cryptocurrency exchanges that handle deals with Chinese nationals, even if they are based beyond the borders of the country. Chinese clients are proving to be a challenge for cryptocurrency exchanges.
Coinbase, one of the top cryptocurrency exchange platforms in the United States, has remained silent on the restriction. According to an article on Bloomberg, investors shied away from the company’s first bond offering after the news.
More Regulations for the Crypto Industry
The major consequence of China’s cryptocurrency restrictions on crypto traders and enthusiasts is that it leads to more unpredictable regulations from other countries. Because of this unpredictability, financial analysts advise people to invest what they think they can afford to lose in cryptocurrencies.
Also, analysts are more concerned about restrictions in the United States than in China.
The greater danger is that the United States regulatory system follows China’s lead. Washington has been more active in its cryptocurrency regulation, and cryptocurrencies are seen as threats to the state’s ability to control the markets.
Regulations to many is a necessity to keep the ecosystem sane and open the market further to investors who are scared of the ‘money in codes’ while to many poise a great threat to reasons for cryptocurrency. Let’s hear your thoughts and what impact you further expect this to have on the market.
Check out our last article on ‘The Four Key Practices to Make More From Crypto Trading’, here