[20/5/2021] Bitcoin was down more than 8% in overnight trade hitting a low of US$38,500 after Chinese regulators directed banks and financial payment firms not to offer clients any services involving cryptocurrency including currency exchanges, registration, trading, clearing and settlement.
- China bans many forms of crypto trading
- Chinese authorities want to move a digital yuan
- The clampdown is the very reason why crypto will hold value
China bans many forms of crypto trading
Although China represents as much as 75% of all Bitcoin mining, the Chinese government is clearly averse to seeing Bitcoins rise in popularity as medium of exchange. Instead, Chinese authorities are keen to see their own digital currency in the form of the yuan become the primary unit of account in the Chinese economy.
Chinese authorities want to move a digital yuan
The digital yuan is both programmable and trackable giving the Chinese government enormous control over the economy. Not only will Chinese policymakers know every consumer choice made in the economy, but they could also directly affect spending behavior by making the currency expirable by a certain date.
Such absolute power over the wealth and income of its citizens is the primary driver of China’s policymakers to convert to a digital fiat currency. Yet it is precisely this policy objective that will drive demand for crypto in the future. With many Chinese entrepreneurs and consumers clearly aware of the government’s intention to exert absolute authority over personal assets, the trend of converting at least part of one’s wealth into crypto assets will continue despite crypto’s inherent volatility.
The clampdown is the very reason why crypto will hold value
That’s why Bitcoin’s 30% decline from all-time highs is very likely a correction rather than a crash as the demand for asset protection and anonymity will provide an underlying bid for the foreseeable future. [Read more]