China’s Impact on Crypto Market Lessens After Weekend Lows
The market impact of China’s call for the need to tighten regulation on cryptocurrency trading and mining to protect the financial system is now wearing out.
The renewed warning by China’s State Council on Friday May 21 sparked a widespread sell-off which saw the value of many crypto assets halved over the weekend like Bitcoin falling below $32,000 from over $44,000 a week earlier.
However, by Monday, the two largest crypto assets by market capitalisation – Bitcoin and Ethereum – have both been up by almost 10% off lows. Bitcoin recovered from as low as $33,525 to see $36,000 while Ethereum climbed to $2,195 from $2,029 about 24 hours earlier.
Shouldn’t have been a cause for alarm
“There’s been some messaging there for some time. This is not a new development, as far as I’m concerned, they’ve been more cautious on cryptocurrencies,” says Paul Mackel, global head of FX research at HSBC. on CNBC’s “Street Signs Asia” on Monday.
Mackel does not believe the Chinese government’s public statement is necessarily a conflict with the proposed digital yuan which is scheduled to be launched next year according to unofficial reports. Rather, he thinks the central bank-backed digital yuan is a very different digital currency and suggests what could be in the government’s thinking:
“I think there’s probably other issues right now — the degree of speculation, volatility and what does that mean in terms of the environment. These issues may have dominated their thinking lately.”
The crypto space had an unpleasant two weeks price-wise for key coins like Bitcoin because talks about energy use for crypto mining gained strength. The rollercoaster trend started on May 12 when Tesla’s Elon Musk announced his electric vehicle company would no longer accept Bitcoin as a payment method for their cars over environmental concerns.
According to Coinmarketcap.com, about $365.85 bln was wiped off the cryptocurrency’s approximately $2.43 tln market value before the reversal. Musk has since said he had a chat with North American Bitcoin miners who promised to, as well as ask miners worldwide, to publish renewable usage.
Worst case scenario for crypto mining in China
Also adding his voice to the development is Jiang Zhuoer, the founder of BTC.TOP, a crypto mining operator, who thinks the situation after the Council’s statement is not as serious as it’s being made to seem.
“The current situation of #Bitcoin mining in China is not as serious as you think,” he states in a series of tweets. “…we can see that the main spirit of the meeting is to “prevent and control financial risks”, to restrain social capital from flowing into #crypto mining sector which might lead to risks transferring from individuals to the whole society.”
Nonetheless, Zhuoer maintains Bitcoin mining will continue to exist as normal though it may see a shift from industrial-size datacenters to home miners, small or medium sized miners in China.
In the end, Chinese hashpower will flow abroad just like the Exchanges did in 2017, China will play a less significant role in the global hashpower distribution.
— 江卓尔 Jiang Zhuoer BTC.TOP (@JiangZhuoer) May 24, 2021
The Bitcoin market, the largest of all cryptocurrencies, also saw another 30% drop on May 19 shortly after three major finance-related Chinese bodies – the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China – released warned investors against engaging in speculative crypto trading.
Zhuoer notes that should China take regulatory actions against crypto mining, major Chinese manufacturers like Bitmain may have to sell most of their machines abroad to earn foreign currency as selling locally could violate set regulation.
Meanwhile, aside from European and North American mining pools ranking higher than the Chinese pools, he believes that there will not be obvious changes in the entire Bitcoin network.