Business

Are Crypto Prices Influenced by China? – Our Insights

 Bitcoin (BTC) and similar crypto assets have always been at the mercy of market and investor sentiment, with entities of this type lacking fundamental and inherent value in the wider marketplace.

This partially explains BTC’s rise and fall during the last year, with the asset having followed the historic achievement of breaking through the $60,000 barrier in April by subsequently plunging to the boundaries of its $30,000 and $41,000 trading range since mid-May.

These losses have been compounded by reports that the Chinese government and local financial regulators are about to implement a crackdown on crypto trading. But how will this impact the market, and what’s the long-term outlook for Bitcoin in Asia?

What’s the Size of the Crypto Market in China?

 China has always endured a complicated and turbulent relationship with crypto assets, despite being one of the first nations to actively embrace digital currency when a Chinese charity began accepting BTC payments back in 2013.

However, 2017 saw the Chinese government and financial regulators perform a gradual pivot, having banned so-called “Initial Coin Offerings” (ICOs) three years ago and subsequently directed state officials to conduct an “orderly removal” of Bitcoin miners from their various charities.

We’ll touch more on this later in the piece, but the recent trials and tribulations simply cannot disguise the immense demand for crypto in China and the sheer size of the marketplace in this region.

For example, the total market capitalization of the crypto space is currently $1.47 trillion, with China having accounted for more than 90% of all trading volume prior to the introduction of regulatory measures and restrictions in 2018.

More specifically, 92% of BTC trading was done with the Chinese renminbi as recently as 2015, highlighting the dominance of this region within the marketplace.

Mining Cryptocurrency in China

 We touched earlier on mining, which is an important consideration given how Bitcoin’s finite supply has a key bearing on its real-time value.

Within the currency crypto ecosystem, China actively controls the supply for prominent assets (including BTC) through cheap and extensive mining operations, with approximately  two-thirds of all Bitcoin mining organisations based in the country.

These include Bitmain, which is responsible for 39% of all mining operations and currently runs the world’s two largest and most distinct mining pools.

This dominance explains why the recent decision of the regulator to banish BTC mining operations has continued to impact on the asset’s price, with the subsequent period of adjustment likely to support an extended and more volatile trading range.

The Future for BTC and China

 Interestingly, the longer-term outlook for Bitcoin may well be a little more bullish in the wake of a mining crackdown in China, as this could help to empower the true decentralisation of mining activity and lead to more competitive prices over time.

This, combined with the increased accessibility of crypto assets through trading platforms like Oanda, may well help to stabilise the market and provide a more consistent growth trajectory for the future.

However, the further decision of the government to warn major banks against doing business with crypto services will begin to weigh heavily on Bitcoin’s value, making it difficult for the asset to break out of its existing trading range.

Fundamental to these regulatory changes is the innate volatility of Bitcoin, which is unlikely to change or be abated anytime soon. This arguably creates something of a standoff between regulators and crypto holders in the region, while having a detrimental impact on the asset’s underlying price.

Ultimately, China is likely to become the world’s most regulated crypto hub, and this will definitely have a long-term impact on the demand and price of BTC. Whether it improves the long-term outlook for the asset has yet to be seen, however, while it’s also unclear whether regulators will apply a similar approach to stablecoins and third-generation crypto assets.

 

Back to top button