Although the Chinese mining crackdown started almost two months ago, the government recently decided to extend the ban to the entire country. Earlier in June, Asian crypto derivatives exchanges were also banned from China’s internet search engines and social networks. Some of those were ordered to block Chinese clients or limit leverage to 5x.
The 35% Bitcoin hash rate cut and the potential impact of stricter access to derivatives markets were enough to obliterate $320 billion worth of total market capitalization to $1.32 trillion on June 23, a 20% crash. Altcoins dropped the most, as some top100 went down 35% or more in the week.
Source: Messari & Digitex
Negative highlights include Kusama (KSM) -44%, NEM (XEM) -38%, THORChain (RUNE) -37%), Bitcoin Gold (BTG) -(37%) and Qtum (QTUM) -35%. In fact, none of the top100 were able to close positively.
What happened besides the China mining and crypto derivatives ban?
If you think it through, ~60% of the hashrate coming from China has always been a valid criticism for Bitcoin. Even though those mining pools are not necessarily formed by a few entities, as everyone is free to change or even work solo, there is always the risk of an internet blockage.
Moving an industrial-scale mining operation to another country ain’t as easy as it seems. Besides physical transport, there are potential import taxes to be paid, energy transformers that will unlikely meet the standards of other countries, personnel, and, more importantly, financing.
While accessing stablecoins markets does not depend on governmental institutions, cashing in and out of fiat in China largely depends on OTC markets. After exchanges were banned in September 2017, the fiat gateway relies mainly on those intermediaries.
However, the Chinese government recently intensified the crackdown. The People Bank of China (PBoC) told banks and financial intermediaries such as AliPay and WePay to shut off any client with crypto mining or trading activities.
With an impending mid-term inability to convert from crypto to local fiat currency and in desperate need to raise cash to reestablish their operations elsewhere, both miners and OTC desks were forced to sell.
Was there anything else besides China?
Grayscale GBTC Trust fund, listed on U.S. markets, holds over $20 billion worth of Bitcoin, faced a 30,000 BTC unlock in a single week. Institutional clients who can buy GBTC shares directly from Grayscale face a 6-month lock-up window, so they cannot sell them on secondary markets immediately.
Although there’s no guarantee that those clients will dump their stake, it certainly adds more pressure to a market that was already beaten up. To make things even worse, Jim Cramer, CNBC’s “Mad Money” TV Host, said on June 22 that he had “sold almost all of his Bitcoin.” Cramer expressed concerns about the Chinese crackdown and ransomware attacks in the U.S.
Was $28,000 the ultimate bottom?
There’s really no way to know because it is impossible to estimate how long it will take for miners to settle and reestablish Bitcoin’s hash rate, let alone the impact of the Chinese crackdown on OTC.
Undoubtedly, the demand from the population for digital assets, including Bitcoin and stablecoins, was not affected as China is underway to implement a digital Yuan. This movement will likely lead to even stricter rules, increasing the demand for uncensorable money.
We’ve seen similar effects in other countries, with Nigeria’s most recent case causing a spike in peer-to-peer (p2p) trading platforms’ volumes. Initially, there’s a substantial local price premium versus international markets, but it tends to reduce as intermediaries find new ways to transact using fiat money.
Can governments ban crypto?
No. There is no way governments can ban someone from using softwares, especially if it doesn’t require an internet connection. Blockstream, the company behind Blockstream.info blockchain explorer and Green Wallet, offers free satellite data broadcasting Bitcoin’s blockchain 24/7.
A group of Brazilians have recently sent a Bitcoin transaction using amateur radio and literally used the moon (yes, Earth’s satellite) as an intermediary.
Multiple services offer SMS (standard text message) commands to propagate Bitcoin transactions. Similar tools have been developed for Telegram and Whatsapp chat services.
When China banned crypto exchanges in 2017, those companies moved their servers to other regions and turned to stablecoins, avoiding fiat currency transactions.
Will the U.S. replicate China’s recent anti-crypto moves?
Coinbase and Kraken are fully regulated and licensed companies in the U.S., offering digital assets trading, custody, and payment processing, including debit cards. Kraken has a full banking license from Wyoming State.
The U.S. Comptroller of the Currency (OCC) clarified in May 2020 that banks could custody cryptocurrency assets and engage in stablecoin activity.
According to CNBC, Miami mayor Francis Suarez is offering low energy prices for miners and clean nuclear power. Suarez has been a crypto believer for years, and the city is currently proposing to accept crypto payments for taxes, fees, and services.
A severe turnaround at this point seems extremely unlikely. However, a potential stronger regulation could certainly delay institutional investors’ adoption, although not effectively ban crypto transmission and activity outside of regulated exchanges.
Do I have any risk by trading at Digitex?
Digitex Ltd is a zero-fee cryptocurrency spot and futures exchange that uses its native DGTX token to enable liquid commission-free markets. We are an established company, registered in St. Vincent, with nearly two years of uninterrupted activity.
We’re fully compliant by proactively banning U.S. clients from participating in our derivatives markets, as well on the IEO offers taking place on Blockfunder.
Suppose China, or any other region, contacts our offices requesting to block IPs coming from specific areas or their citizens to take part in leverage trading. In that case, those requests will be reviewed, and our legal team will act following the legislation.
Our main goal is to protect clients’ assets, maintaining a secure and reliable trading engine.
What is the recommended strategy here?
Personally, I was not expecting so much heat from China, therefore my long positions have increased at $49k and more recently at $35k. Sure, it must be good to ‘catch’ the exact bottom, but in 6 to 9 months’ time, will it make a difference?
My point is: don’t wait for the perfect entry point, but at the same time don’t over-leverage your position. Make sure there’s enough margin to stay liquid if Bitcoin drops to $20k.
Written by: PlebBTC Stacker (I’m writing for Blockster), covering crypto markets since 2017. Retired derivatives trader and full-time pleb. After two decades of working on traditional finance, I started by doing crypto p2p trading and finally understood the true value of scarcity and censorship resistance. Be humble, stack sats!