China’s Position On Crypto: What Does It Mean For The Market?
Public aversion to Chinese cryptocurrencies is gray, and as some reports point out, it’s not as extreme as the media portrayed. A BBC article highlights that China has stepped up its active engagement in suppressing cryptocurrency access and services for banks or payment companies.
According to Arcane Research, such announcements can throw the current market off balance as they send mocking waves through the system. The Fear and Green Index, which tracks an index of market sentiment, has fallen to a low of April 2020 and is approaching “extreme fear”.
Regulatory measures by the Chinese authorities are nothing new, as the People’s Republic of China banned financial institutions from handling Bitcoin in 2013 and made ICOs illegal from 2017. Is the Chinese Approach To Cryptocurrencies Too Aggressive?
What is China actually up to?
Chinese authorities have classified cryptocurrencies as inaccessible due to several determinants. Their severity arises from the price volatility and the speculative nature of the asset, which poses an undesirable risk to the Chinese wealth holders. Despite the strong action, trade in China continued normally.
The alarm from China is nothing new. This week, three state-backed organizations reaffirmed China’s stance on crypto and highlighted the risks associated with crypto investments. ‘Mr. Li ‘(who was unwilling to give his real name) stressed that users in China can still buy Bitcoin or send money to non-Chinese exchanges through the bank.
Chinese regulators have not made possession of Bitcoin or any other crypto illegal. Still, they are suspicious of money laundering and fraud facilitated by Bitcoin or other non-government payments. Additionally, China’s adherence to blockchain technology deviates somewhat from its global perception that crypto eschews. Therefore, confusion often arises when discussing cryptocurrencies or blockchain.
In retrospect, the Chinese government is building a legal framework to implement blockchain or crypto harmlessly. As a result, China launched a blockchain-based service network (BSN) in 2020 to track technological advances in digital currencies. In addition, crypto is embedded in Chinese culture, with most of the hashing power coming from Chinese miners. Reports of mining in China have occurred in the past; However, they were rephrased by the media when mining migrated to other provinces where green mining was possible despite a ban in the Inner Mongolia region.
On the downside
- Regulatory action is needed to increase institutional confidence and reduce Bitcoin’s volatility.
- Investors are swapping Bitcoin for gold to protect their assets in the face of high price volatility.
- The announcement never affected crypto trading as exchanges continue to accept Chinese currency.
The Chinese embassy was due
A market correction should come after the cryptocurrency market had been in the green for several productive months. CoinShares’s Meltem Demirors stressed that the correction is “healthy” and a decline in cryptocurrencies is normal, reiterating the increased volatility that investors have already become accustomed to. Bitcoin price fell below $ 40,000 as it fell more than 40% from its all-time high.
The rally of bitcoin and altcoins has raised concerns with regulators in China and around the world. While the Chinese announcement is understandable given the ability of the cryptocurrency to maintain relative anonymity, it does raise new questions regarding regulatory adoption in the crypto marketplace. China’s “ban” is therefore nothing more than a regulatory measure previously witnessed in the market when Turkey and India denounced the use of cryptocurrencies.
In an article by Business Insider, the author emphasizes that a “ban on crypto” is impossible because crypto currencies are a “piece of code”. Although they are generally perceived as an asset, they have neither value nor liquidity. In addition, regulatory measures are to be taken to protect the existing financial market from disruptive technology. Elon Musk’s ability to influence the price of Bitcoin or DogeCoin is the exact reason governments are taking regulatory action.
Increased volatility increases the value of Bitcoin and other digital assets as a Bitcoin or cryptocurrency price is determined by external factors such as news or speculation. Its value is determined by market demand and regulatory measures aim to determine its volatility to protect retail investors.
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