“What’s going on with China?” a friend asked when he found out I was heading to Beijing.
He wanted to know if China is going to ban crypto – and cause prices to plummet.
To anyone who follows cryptos, the country looks remarkably inconsistent with its crypto rules.
In September 2017, six Chinese government agencies and financial regulators plus the People’s Bank of China banned crypto initial coin offerings (ICOs).
At the time, ICOs were the easiest way for new crypto projects to receive funding from crypto investors.
Charles Mizrahi just issued a strong “buy” on a little-known company at the forefront of a $15.7 trillion tech revolution. Early investors could reap huge profits as this brand-new market surges up to 142,672%.
The news caused an immediate selloff in the crypto markets, causing bitcoin to fall from US$4,975 to US$3,238, as you can see in the chart below.
Crypto investors were clearly spooked by the news. 18 percent of people who invested in crypto at that time were buying it with Chinese yuan, according to CryptoCompare.com, a crypto analytical site. So the ICO ban affected nearly a fifth of all of the people investing in crypto.
Not even a month later, regulators ordered the country’s bitcoin and cryptocurrency exchanges to shut down.
Together, those decisions pushed the price of bitcoin down 35 percent. Overnight, China was seen as being “anti-crypto.”
But with or without Chinese investors, the bitcoin market went on to climb to US$20,000 in December 2017.
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China hasn’t completely given up on crypto – yet
Although Chinese regulators dampened enthusiasm for cryptos in the country, many Chinese kept investing in crypto using offshore trading accounts.
And China has continued to contribute to crypto in other ways… by building and running some of the world’s fastest and most efficient mining machines.
Crypto mining is the process of using powerful computers to carry out the mathematical functions that enable crypto and blockchain transactions.
As you can see in the chart below, China controls more mining power than every other country in the world combined.
However, last month, China’s National Development and Reform Commission (NDRC), China’s top economic planning agency, drafted guidelines that classify crypto mining – as well as hundreds of other sectors – as undesirable and something that should be eliminated.
Crypto investors around the world paid close attention to the proposal. It appeared that the NRDC was pushing for a complete ban on cryptocurrency mining in China, similar to what China had done in 2017 with ICOs and domestic crypto exchanges.
However, the crypto markets had a much different response to this news than they had in September 2017.
The NRDC announcement came on April 8, just six days after a massive bitcoin rally. While there was some volatility in the crypto markets, bitcoin was able to hold on to virtually all of the gains it had made earlier that month.
In effect, the market is telling us one of two things: either it doesn’t care if China bans mining… or it doesn’t believe China will actually ban mining.
I believe the market’s telling us China won’t ban mining. If it did, cryptos would have sold off in April just like they did in September 2017.
And mining not only produces income for Chinese citizens, it helps grow the country’s computer hardware industry, employs thousands and keeps China at the cutting edge of one of the world’s hottest technology sectors.
So I don’t think the government is in a rush to shut it down. And China’s previous directives to ban ICOs and crypto exchanges were implemented to protect Chinese citizens. Chinese regulators understood that individual investors stood to lose their savings by investing in unregulated cryptos or using unregulated exchanges. Until the laws guiding and protecting investors are able to catch up, I don’t expect China’s stance to change.
Mining cryptos, however, is different. The majority of mining operators in China are large and well-funded.
So while the NDRC may be issuing guidelines to eliminate mining, I expect the Chinese government to move slowly on this and allow large mining companies to work with the government to create acceptable regulations.
In short, while the ICO and exchange bans are still in place, I expect China to continue to play a very big part in the future of crypto.
Lead Crypto Analyst