Why the Chinese Crackdown on Crypto is an Opportunity
  • 21 May, 2021


Why the Chinese Crackdown on Crypto is an Opportunity and Not a Concern


On Wednesday 19th May, Bitcoin’s price dropped more than 30% in a little under 24 hours.


The reason for the sharp correction in the price of Bitcoin came after China, the world’s second-largest economy, launched a fresh crackdown on digital currencies.


China’s financial industry regulators declared that banks and payment firms were not permitted to offer clients any services involving cryptocurrencies.


For some time, China has been putting pressure on the crypto space. In 2017, China placed heavy restrictions on crypto. However, the latest crackdown goes further than just reiterating the 2017 ban covering services that were not previously mentioned.


The new crypto directives were made in a joint statement from the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China, and, are a big turnaround from 2013 when the Chinese government categorized bitcoin as a virtual commodity allowing individuals to freely participate in its online trade.


So does this mean the end of crypto? Absolutely not. The recent bull run in Bitcoin saw a big spike in crypto traders in China. The over-the-counter market for cryptocurrencies in China became busy again, whilst once-dormant trading chartrooms on social media were revived, attracting a whole new swathe of Chinese crypto traders and those interested in crypto.


As with 2017, the bull run brought more attention to the crypto world, and just as in 2017, the Chinese authorities, worried about the effect of surging crypto prices on its own fiat currency the Yuan, implemented bans and restrictions.


In fact, out of all the G10 currencies, the Yuan has the strongest statistical correlation to BTC over the last year, approximately 84%, slightly higher than the USD. Meanwhile,  the Euro has around 74% and the Russian Rouble just 8% correlation. In short, any big changes in Bitcoin’s price impact China more than any other nation, hence the latest action by the Chinese government.


However, although the fresh crackdown in China will undoubtedly make it more difficult for financial institutions and everyday people in China to trade or use Bitcoin, the world of digital currencies has become too big to cancel, even for China. Global institutions like Grayscale and JPMorgan who are massive holders of Bitcoin are not affected by the China crackdown and so far, have expressed no intention of selling.


Another reason not to be too concerned over the crackdown is Chinese miners. Using uber-cheap electricity, Chinese Bitcoin miners have dominated crypto mining for years with as much as 95% of all bitcoin mining in 2018 being from China. The crackdown will hurt Chinese crypto miners which will mean Bitcoin will be mined elsewhere at a greater cost. This, over time, will push the price of Bitcoin higher.


Although we should keep an eye on China’s crypto actions, we should not be too concerned. As Hong Kong’s Bitcoin Association said in a recent tweet in response to China’s crackdown: 


“For those new to bitcoin, it is customary for the People’s Bank of China to ban bitcoin at least once in a bull cycle.”


Now there is that price correction, and the price has fallen, there has not been a better time to buy Bitcoin at such a low price for months. Get in on the dip and buy your bitcoin at Cointandem before the prices go up again.


 

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