Beijing’s Crypto Crackdown and Its Effect on Bitcoin

China cracking down on cryptocurrencies continues to be one of the main headlines across the financial media. Several years back, more than 90% of the activity in the digital asset industry came from China and the yuan was the most used fiat currency to buy Bitcoin and other altcoins.

The country’s view of decentralized currencies continues to be the same and in 2021, new measures have been taken to further put pressure on activities involving crypto, especially now when there is a digital yuan pilot project running across several regions. Markets Legion wants to talk about the Chinese crypto crackdown and whether that has some effects on Bitcoin.

Source: https://pixabay.com/vectors/bitcoin-digital-currency-4130299/

China banned crypto since 2017

One of the main stories in late 2017 came from China, which had banned several important cryptocurrency exchange platforms, as well as Initial Coin Offerings (ICOs). It was an early signal for what turned out to be a painful bear market, that drove Bitcoin from close to $20,000 all the way to $3,000, where it managed to bottom.

Markets realized that tighter cryptocurrency regulation will eventually make many crypto projects unable to operate, especially as the level of scams reached record levels. During the initial phase of the cycle, Bitcoin had been favored due to major inflows, but eventually fell under pressure as both institutional and retail holders were liquidating their tokens.

China and Bitcoin mining crackdown
China and Bitcoin mining crackdown
Source: https://www.scmp.com/tech/policy/article/3134306/bitcoin-and-other-cryptocurrencies-can-still-be-bought-china-after

Regulatory pressures weighing on Bitcoin?

Many Chinese residents are actively involved in the cryptocurrency market, even in 2021, despite numerous attempts by the local government to prevent the use of Bitcoin. According to Yahoo Finance, the Sichuan branch of the National Development and Reform Commission (NRDC) has issued an order to shut down crypto mining operations in the southwest province.

Cryptocurrency miners have been operating in China for an extended period, due to lower costs, but as pressure from the Communist Regime intensified, most of the companies moved operations off-shore, to countries like Singapore or Japan.

Since April 14th this year, the Bitcoin price has been under selling pressure, now trading around the $34,000 mark. Although the market had become accustomed to Chinese regulatory pressures, this had been one of the reasons why BTC retraced from all-time high and posted a 50% drawdown for the first time since the beginning of 2020.

Retail traders and institutions manage to bypass the ban

The Chinese big firewall is popular across the world as it serves as a great tool for restricting access to information available on the web. However, even though the Chinese government has all these tight measures in place, residents and companies continue to be heavily involved in the cryptocurrency industry, via off-shore entities, or by using apps such as VPNs.

Despite an apparent negative feedback loop that could drag on valuations, it does not have a meaningful impact on flows. Some statistics may show that crypto activity in China has dropped, but in reality, most of the local participants are still involved, via other jurisdictions.

Where is Bitcoin headed?

It turns out the link between Bitcoin and the Chinese crypto crackdown is vague since the price rose even when new restrictive measures had been announced in China. However, Markets Legion can conclude that such news can aggravate the negative market sentiment, as has happened during the past two months.

Bitcoin is showing signs of weakness and its next direction continues to be clouded by uncertainty. Volatility is still elevated, creating an environment where retail traders can spot short-term opportunities.

Markets Legion is a cryptocurrency trading platform established in 2020, we specialize in providing cutting edge trading technologies.