China has long been known for its strict policies on all things digital: social media, website access, mobile use, commerce, and communication. So while it’s no surprise they’ve clamped down on the cryptocurrency market there, their recent actions indicate an even more aggressive approach to the ban.
With most analysts forecasting China to overtake the US as the world’s largest economy - perhaps in the next 5-10 years even - these actions have a far reaching impact on the crypto-verse. How have they impacted the landscape? How has the market reacted? These are just a couple of the questions we answer this week as we take a look towards the global future of crypto - with and without China.
A Quick Summary of China’s Actions to Ban Crypto
As we saw explosive growth among Chinese investors last year, it didn’t take long for the Chinese government to begin taking dramatic actions against cryptocurrencies. It started with an ICO ban on September 4th, 2017. Soon after, they banned local exchanges and users from trading cryptocurrencies and restricted cryptocurrency mining. And more recently they forced WeChat, China’s largest messaging app, to ban the accounts of many cryptocurrency investors, personalities, users, and businesses. Even crypto discussions on Baidu Teiba, China’s Reddit like online form, have been banned.
Continuing the onslaught, both WeChat Pay and AilPay, China’s largest payment apps are no longer allowed to process crypto transactions. This was followed with an announcement that even cryptocurrency events have been forbidden in several areas such as Beijing’s Chaoyang district, and the Guangzhou Development District. And perhaps most explicit with their intentions, the Chinese government is also working to actively block its citizens from accessing global cryptocurrency exchanges.
At one time, China made up a significant portion of daily cryptocurrency trading volume around the world. But 2018 paints a very different picture. We’ve not only seen some of their top exchanges be chased out to crypto-friendly locales such as Singapore and Malta, but Chinese investors have even resorted to secret local slang like ‘pancake‘ and ‘leek’ to keep under the authorities’ radar.
How China’s Policies Are Affecting the Market
The Chinese government’s tough actions have definitely been felt by the global cryptocurrency market. In fact, in the days following China’s ICO ban on September 4th 2017, the cryptocurrency market cap dropped $35 billion. During the following period, the price of Bitcoin dropped roughly 40 percent from around $5,000 down to about $3,000. Negative regulatory actions from China have generally resulted in similar market downturns.
NEO, the so-called “Chinese Ethereum,” is one digital asset that seems to have suffered even more from the “great firewall of China.” The price of NEO has dropped roughly 80% in the last four months, falling from around $80 USD in May to its more recent range between $16-$20. Clearly it’s hard to instill trust and grow market share when even discussing such an asset is outlawed.
Many point to China’s actions as one of the root causes for the continued bear market we’ve been seeing in 2018. While the global crypto market’s foundation has proved resilient to their aggressive crackdown, there recent actions could further reduce global demand, thereby contributing to extension of bearish sentiment.
Where We Could Go From Here
Scenario A: China continues as is, fully closing the country out of the global crypto market
If China does in fact proceed to force a full exit from the crypto-verse, the market may look much like it already does. Daily bitcoin trading with Chinese currency has dropped to under one percent of the global trade volume - indicating just how effective their restrictions have been to date. So while people are used to China’s policies moving markets, at this point such a scenario could be less harmful than many people expect.
Scenario B: China reverses constraints and allows for unrestricted cryptocurrency use
While this is the most unlikely scenario considering historical action, a ban reversal could potentially open the floodgates to billions of dollars of new investment into the market. This could not only be the catalyst for a major bull run, but also position China as a focal point for future cryptocurrency and blockchain innovation.
Scenario C: China blocks out competitors to launch a native cryptocurrency
This is not only one of the most interesting possibilities, but something the Chinese government has been rumored to be considering for some time. If China does introduce a national cryptocurrency and/or regulated crypto assets of some kind, it could dramatically alter the landscape. In fact, some analysts predict that a national Chinese cryptocurrency could even grow to surpass bitcoin’s market cap.
However even if Chinese cryptocurrencies did rise to prominence, being issued and controlled by the government would likely keep them closed off from the global market early on. But if - and likely when - those digital assets were opened up to global traders, we could see explosive industry growth and new opportunities that help shape a new era of crypto asset investing.
Global investors seem to have already priced China’s aggressive policies into the market, but with their power over a population of almost 1.4 billion people we can’t count them out just yet. While their further action, or even lack thereof, may not cause much price movement in the short term, there is definitely a potential upside if they proceed to enter the market themselves. It may not be for a particular token, but it could be as a boon to global investor trust and adoption of cryptocurrency investments.
And if by any remote chance they reverse their policies and take down the firewall, we can likely expect a bull run that none of us will want to miss!