Here is Why China News Crashes Crypto Prices so Often

According to a recent report, the Central Bank of China (PBOC) has demanded several major banks and payment institutions in the country to halt providing services to crypto-related businesses. And as usual, the news acted as a catalyst and dumped prices across the entire crypto market. 

Bitcoin, for instance, has lost more than 10% in the last 24 hours and is currently trading below $32,000 price levels. Altcoins have performed even worse, with Ethereum plummeting beneath $2,000 for the first time since May. 

While such a reaction is quite normal considering China’s substantial share of the crypto market, it is also a good reminder of why a decentralized and independent financial system is entailed.

Why Is News From China So Influential?

China is the world’s largest crypto mining hub; it is estimated that the country hosts around 75% of the world’s Bitcoin mining hashrate. Since mining is vital for Bitcoin and almost all cryptocurrencies, a piece of news from China can really hit the crypto market.

The “mining” term used in crypto can often be misleading; people might think it is merely beneficial to its operator. However, mining is a vital service to the Bitcoin network. It facilitates decentralized transaction recordation and validation.

Most importantly, the more miners, the more powerful the Bitcoin network gets. In other words, in order to hack and steal some Bitcoins, one needs to control over 50% of the mining power “hashrate” — which is currently a synonym for impossible.

However, if the Bitcoin mining hashrate drops significantly, the probability that a single entity with enough influence on the market gets the power to abuse the network increases. This is a very big threat to Bitcoin’s safety, and that is why a Bitcoin mining ban in China is so influential.

Moreover, China is the world’s most populous country, with a population of more than 1.4 billion. This means that Chinese people account for 18.47% of the total world population. Consequently, a crypto ban in China is blocking more than 18% of the world from getting into crypto — and also a large sum of money.

China Intensifies Crackdown on Crypto — Paving the Way for its CBDC?

On May 21, China’s State Council signaled a crackdown on cryptocurrency mining, aggravating the already started Bitcoin slide. Since then, the country has been very determined in restricting crypto-related businesses.

On May 23, news came out that Huobi has halted its miner hosting services in China. One day later, on May 24, Btc.top and Hashcow revealed that they would cease selling machines to clients in China. And as covered by The Tokenist, China has started shutting down Bitcoin mining hubs in Sichuan one after another.

Now, China’s Central Bank is demanding some banks and payment institutions to crack down harder on cryptocurrency trading. According to an article shared by the Central Bank of China, they have talked to five major Chinese banks and Alipay regarding the crypto “issue.” 

The outcome of this discussion, according to China’s Central Bank, was that cryptocurrency trading is disrupting the conventional financial and economic order in the country. The bank further claimed that crypto raises risks of illegal funds transfers, money laundering, and other illicit activities — a cliche that has been trotted out again and again, without containing much truth.

Nevertheless, all these intensive crackdowns are happening at a time when China is preparing for a full roll-out of its e-CNY. Last week, Chinese banks rolled out more than 3,000 ATMs that can convert digital yuan to cash. The country seems to be very close to launching its CBDC and does not want a competitor to disrupt its dominance.

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Crypto Ban “is a Tragedy for China”

Since their inception, cryptocurrencies have been quite profitable. As covered by The Tokenist, US investors garnered $4.1 billion in profit from investment in Bitcoin in 2020. Likewise, Chinese investors raked in $1.1 billion in profit. 

However, by sticking to its prohibitive policy, China is depriving itself of the millions of dollars it currently gains in profits from cryptocurrencies. CEO Michael Saylor also mentions that China will be the only one affected by banning cryptocurrencies:

Furthermore, many argue that the current price pressure is a common overreaction. Numerous Bitcoin bulls believe that the leading cryptocurrency will even benefit from a move away from Chinese reliance.

Why CBDCs Are Not Solution

With CBDCs, governments will be able to collect as much data about their citizens’ financial backgrounds as they want to. In a nutshell, CBDCs are going to be a disaster for privacy. The governments will be able to monitor, track, and record every single transaction.

Furthermore, through the CBDC, the governments will have the ability to approve or deny transactions. One will never be the real owner of his/her money; the government can seize it in a matter of milliseconds. In addition, CBDCs can make negative interest rates enforceable to everyone — and there will be no place to hide. 

However, bearing all these in mind, it is paradoxical that a European Central Bank executive stated that the digital euro will be more capable of protecting privacy than private alternatives. While the official launch of the digital euro could be years away, yet we can be partially sure it will not be a favorable solution to all.

In fact, the only practical solution to the prevailing financial dilemmas is the ever-growing DeFi space. Built with the premise of an independent and open financial ecosystem, DeFi allows people of any jurisdiction with an internet connection and blockchain wallet to take part in the global economy.

Why do you think China is so persistent in banning cryptocurrencies? How do you think Chinese people will react to a full roll-out of digital yuan? Will they use it? Let us know in the comments below.