The [Over]reaction to China’s Ban of Crypto in their Financial Sector
Cody Garrison | 5/19/2021
Throughout the last decade, headlines have emerged over and over again regarding China banning its citizens’ use of cryptocurrency and digital assets such as Bitcoin (BTC) and Ethereum (ETH). From crack downs by the China Securities Regulatory Commission in 2013 to their banning of Initial Coin Offering (ICOs) in 2017, we’ve come to expect this type of recurring opposition from the People’s Republic of China every few years.
Today is no different – with China again announcing a ban on financial institutions and payment firms from providing crypto asset businesses. And the markets certainly took notice.
Major cryptoassets saw sell offs in excess of 50% as the market reacted aggressively to the news. While new investors to the space may have panicked as the largest country in the world barred its citizens from the rapidly growing ecosystem, Clearblock believes the market’s [over]reaction was irrational in the greater scope of the cycle.
The Chinese Economic System Inherently Clashes with Cryptos Core Motivations
It’s shouldn’t come as a surprise to global investors that a Communist country doesn’t want their citizens to accrue the financial freedom that non-sovereign digital alternatives can offer. It clashes with the near-totalitarian control they seek to impose on the population. China is able to expand their broad surveillance mechanisms into their population’s wallets through the forced use of the sovereign Yuan. Bitcoin is an inherent threat to this.
The Market WILL Recover
It’s not the first time a headline like this has brought a storm to the markets, and it certainly won’t be the last. Yet after every headline, and after every news scare of the past, the market has only come back stronger. More than 6.3 billion individuals reside globally outside of China, only 1.3% of which are believed to currently own Bitcoin.
We continue to hold the belief that regulation is the one firm headwind to the rapidly emerging crypto markets, yet foresee a greater number of tailwinds propelling bitcoin and broader markets to further highs. Take a look at our previous market outlook which remains unchanged.
Promoting Decentralization
We believe that China’s continued hard line approach to the emerging crypto space will be a net benefit for the ecosystem long term. With nearly 75% of the Bitcoin mining is currently housed in China, this type of harsh regulation will likely promote mining operations to move from China to other emerging crypto hotbeds such as Europe, South America and the United States, in turn promoting broader decentralization across a key variable in protecting and scaling the crypto ecosystem. This week will be seen as a blessing in disguise in the long run.
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The views above are opinions of the author and Clearblock Insights. They are not to be taken as investment advice.
