Over the past week, news spread that the Chinese government has decided to deem all cryptocurrency transaction illegal. The news came with a far smaller impact on the price of Bitcoin than expected. Industry newcomers lost their minds and anticipated the mother-of-all-crashes to hit Bitcoin.
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Having watched Bitcoin specifically for the past 10 years or so, I would contend that the Chinese government has always had a rather strange relationship with Bitcoin. The New York Times wrote on Friday: “China intensified its crackdown on cryptocurrency on Friday, declaring all financial transactions involving cryptocurrencies illegal and issuing a nationwide ban on cryptocurrency mining, the power-hungry process in which vast computer networks compete for newly created crypto tokens. Bitcoin, the world’s largest cryptocurrency, dropped as much as 7 percent, to around $41,100, on the news, but recovered somewhat as the day went on.”
For a very long time, the Chinese dominated the Bitcoin mining space and was the home for the world’s largest mining farms. So much so that it actually became a concern for the US, which decided to join the race and regulate crypto mining in the US. Certain people at the White House really saw a threat from China’s Bitcoin mining power and lobbied for its regulation and support by the government.
However, over the past few years it seemed like China would ease and welcome crypto, before suddenly slapping it across the face with a broad, vague new restriction. I remember when, in 2017–2018, Chinese regulators saw that Bitcoin mining was siphoning too much energy in jurisdictions where electricity was being subsidized by the government they ejected the miners, who fled to places like the US and Europe, where renewable energy is free and abundant.
In recent years, Chinese watchdogs have cracked down on cryptocurrencies many times, banning their mining, criminalizing their transactions, and banning fundraising through crypto. China even went as far as creating a new cryptocurrency that is — by mandate — made to replace all cryptocurrencies (called the digital renminbi), which is celebrated as the world’s first real, fully fledge central bank-issued digital currency. Yet, somehow, every time China has cracked down on crypto, the price of Bitcoin simply recovered in a matter of days if not hours.
Chinese regulators have been back and forth with their love-hate relationship for cryptocurrencies such that their bans are having less of an impact, as history has shown that all Chinese stockholders always find a way around the regulation. Furthermore, Bitcoin is the all-time favorite in the crypto world, and miners seem to easily migrate out of china.
In fact, at one point, China’s mining power totaled almost 70 percent of global crypto supply. Today they are mining less than 30 percent of global supply! This shows the resilience of Bitcoin network participants in China, and that the Chinese regulators’ actions are less meaningful than they once were.
In the short term, yes, crypto bans do have an impact, as we saw on Friday, when Bitcoin dropped 7 percent on the Chinese news. In the long run, however, the markets seem to always price in the worst and continue moving forward.
In my opinion, Bitcoin has proven its resilience since its inception in 2009 and is still the world’s strongest line of code, probably, as it hasn’t failed to this day. Mind you, the market cap of Bitcoin reached a level close to 20 percent of gold’s market cap, which is nothing to take lightly. This technological breakthrough came out at just the right time in history and continues to itself to this day. Bitcoin is definitely here to stay and will play a bigger role as future unfolds.
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