Recently, China clamped down hard on the crypto market, cutting crypto-related transactions from the financial system. The Chinese government also warned investors against speculative trading in 2021. However, this latest development makes it difficult for residents to buy Crypto via various payment means. Miners are also affected as they may find it difficult to exchange crypto for the local currency Yuan.
Let’s look at the Chinese economy and why it impacts the crypto market despite crypto being banned.
Why the Chinese Economy Impacts the Crypto Market despite the Crypto Ban
China was one of the first countries to adopt crypto via a Chinese charity that started accepting bitcoin in 2013. Before the initial crypto ban, investors in China could buy bitcoin to make profits. As bitcoin transactions are not controlled by the government, investors see it as a hedge against inflation. However, few individuals dispute that China’s crackdown on crypto trading and mining is behind the recent fall in bitcoin value.
As they argue on whether the crypto price volatility is a mere sign of weakness, another initiative emerged from Beijing. According to experts, this initiative is a sign of China’s attempt to introduce its digital currency via the reserve bank. The main aim of setting up this e-currency, a digital Yuan, is to reboot the country’s financial system internationally. The Chinese government hopes to explore the benefits of an e-currency, a blockchain-based central bank digital currency -CBDC.
China believes that internationalizing Yuan would reduce its dependence on the global banking system dominated by the dollar. This is another reason for the total crypto clampdown since they cannot control crypto trading activities. The government in Beijing sees the unregulated monetary system that emanates from blockchain technology as a big threat.
Further Impacts of the Chinese Economy on Crypto Market
Since the 2017 ban, many trading exchanges in the China mainland, including Binance have relocated to Hong Kong and other places. This has given rise to a gradual shift of the global crypto center from China towards North America and Europe. According to Philip Gradewell, Chinalysis chief economist, the latest ban on bitcoin mining poses a limited effect on global crypto trading.
This is because they have already mined most of the popular crypto-like bitcoin. Data from Blockchain.com shows that 18.7million out of 21 million finite bitcoin supplies have been mined by August 2021. Gradewell added that the Chinese crypto ban may end up having some short-term positive effects on the global market. Investors are comfortable as crypto mining becomes environmentally friendly and regulation becomes more amenable, with more mining moving into Europe and the US.Even with their intention to dissociate themselves from crypto, China is still a major player in the crypto ecosystem. The country’s economy has various channels through which it affects crypto prices even as it cracks down on them. Channels like the Binance and Huobi exchanges, founded in China, now plan to go global since they cannot operate locally. For US investors, China’s crypto crackdown will continue to influence market volatility for investors.