What China’s Cryptocurrency Trading Ban Means for Global Markets

Posted by on September 16, 2017 12:10 pm
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Categories: china factor

First off, it’s not a Bitcoin exchanges ban, it’s a cryptocurrency trading ban. All cryptocurrency exchanges in China will stop offering domestic coin trading and coin buying in Chinese yuan. The bigger ones keep on offering over the counter (OTC) trades, many smaller exchanges close down altogether.

How will this impact the global cryptocurrency markets?

Overall, China’s banning of domestic cryptocurrency trading is not a bad thing. Sure liquidity will suffer a bit, but the pseudo-communist party can’t just make Bitcoin & Co. go away. They’ll be back, albeit somewhat regulated, which also is not a bad thing. Or as Tim Draper tweeted:

The too-much-Wild-West in the market doesn’t serve anyone. Cryptocurrencies today are too prone to manipulation. Certain players have gained manipulative power on Bitcoin especially and therefore on crypto markets in general. If cryptocurrencies want to appeal to a broader market and generate more use cases, then regulation is the next logical step.

And that is exactly what will happen in China. They chose strong-arm tactics for now, but rest assured in the background wheeling and dealing is going on as how the future of cryptocurrencies in China should look like.

Or you think it was just a coincidence that a high-ranking Chinese finance delegation recently met Ripple execs at their San Francisco headquarters? The distinguished visitors knew by a long shot what was brewing back home.

The Chinese miss no chance to make a good deal, but the government wants its own say, so it’s rather a miracle that the largest exchanges in China were allowed to operate without licenses for so long.

But what about that “China factor,” how does the crypto trading prohibition impact the global markets overall?

China’s influence wanes

Most importantly, China is no longer the dominant Bitcoin trader it once was, its influence wanes. A series of government bans — most recently a four-month trading freeze due to security concerns — have seen its share of global trading drop from more than 90 percent in previous years to just over 10 percent today.

Markets like Japan, Korea and the U.S. have emerged to account for the lion’s share of global trading volumes, so the impact of this China ban is not as severe as it initially may seem.

On the contrary, I wouldn’t be surprised if China’s unintended efforts to push the digital currencies underground will most likely increase the value of selected digital coins. Larger over-the-counter (OTC) trades are still allowed, the government just doesn’t want the money in the hands of average people (sic!). Sure the Chinese will find ways to still get hold of cryptocurrencies, and they’re willing to pay a higher price for it, which could reflect positively on global prices.

Less ICOs

Yes, China completely shut down the market of ICOs (initial coin offerings), a market which in many ways degenerated into an easy way to easy riches for issuers while all investors got was a white paper. There are pros and cons to a shutdown, but needless to say that no ban will kill innovation, money and ideas simply will find new ways.

Bitcoin mining affected?

Mining? China’s huge cryptocurrency mining industry will likely be affected, but that’s also not a bad thing considering the huge carbon footprint crypto mining causes. Powering up those mining computers necessitates a phenomenal waste of energy.

China, home to the largest group of Bitcoin miners on the planet, produces a hefty sum of new tokens every day. Without access to domestic Bitcoin exchanges any longer, many of the flourishing mining operations in China may close down or switch to other cryptocurrencies as a central focus.

Should this happen, then Bitcoin production worldwide may change substantially. The overall effect on the price is somewhat hard to predict, yet it’s likely to erode Bitcoin’s dominance altogether and thereby strengthen altcoins.

Yet there is another hardly discussed risk: with Chinese mining supremacy, could China turn Bitcoin into, say, Chinacoin?!

Will other countries follow China?

Overall, doomsday is here should other nations follow China’s suit, yet that is highly unlikely. They all aim to regulate cryptocurrencies. Japan, South Korea, Australia and others are taking measures to legalize digital currencies, not least to strengthen money-laundering rules, but not to eliminate a market that offers more benefits than dangers also to state actors, mainly: increase the efficiency of all sorts of systems.

After a to-be-expected dive global markets shrugged off the China ban and quickly recovered. Yes there might be another slower Bitcoin dive down to the ranges of $2-2.5k, yet markets have become resilient. The main victim of China’s crypto trading ban turns out to be China itself.