Chinese traders have turned to stablecoins to buy and sell cryptocurrencies.
China’s mining exit will help decentralize the network and reduce risk by 51%.
Bitcoin fell 20% in the past six days as investors became more anxious and skeptical about the future of bitcoin in the face of China’s continued crackdown on cryptocurrencies.
Bitcoin price chart during June 2021. Fountain: Bexplus
Bitcoin fell as low as $ 29,000 on June 22 when news broke that China’s top six banks and Alipay are prohibited from accepting cryptocurrencies or using them as a means of payment and settlement. Banks will suspend the accounts of those who have done business related to cryptocurrencies. Additionally, in accordance with a previous ban issued in May, banks and payment companies should improve monitoring of money flows involved in cryptocurrency trading.
Bitcoin mining was also affected by the crackdown. China had ordered the closure of crypto mining farms in Xinjiang and Inner Mongolia, two provinces dependent on coal, and Yunnan and Sichuan, provinces whose main sources of energy are renewable and environmentally friendly. Cryptocurrency accounts are blocked on the Chinese social giant Weibo and the search for crypto-exchanges on the Baidu search engine does not return any results.
What is China’s influence on Bitcoin?
Chinese investors and miners play an important role in the bitcoin market, along with those in the US First of all, China accounts for more than 75% of bitcoin mining worldwide. This has many people concerned that China has the power to control the supply of bitcoin.
Furthermore, according to data from CryptoCompare, in November 2015, bitcoin trading conducted with Chinese yuan accounted for 92% of global bitcoin trade. When China closed local cryptocurrency exchanges in 2017, the percentage plummeted to just 0.07% in November 2017.
That does not mean that Chinese traders have left the market because they have since turned to stablecoins to buy and sell cryptocurrencies. Therefore, there has long been a concern that, with a large proportion of mining and trading activity taking place in China, Chinese hodlers may have the ability to initiate a 51% attack or control bitcoin.
“When China sneezes, bitcoin catches a cold,” said CryptoCompare CEO Charles Hayter, “but this flex of the regulatory muscle is often just that – in the last eight years, this story has come up at least three times.”
What does a “deschinizado” future hold for us?
In the short term, China’s crackdown on cryptocurrencies will undoubtedly be one of the biggest blows to this market. Traders, especially those located in China, flock to dump their bitcoins for fear of a crackdown. According to Elie Le Rest, a partner at digital asset management company ExoAlpha, Chinese market participants have been leaving the market for the past month.
On the supply side, mining farms are closed and Chinese miners are forced to relocate their farms. The bitcoin hash rate has dropped three times in a row, hitting a six-month low.
But many investors believe that “present pain is future earnings.” First, China’s mining exit will help the decentralizing narrative. Many companies are increasing investment in bitcoin mining to counter China’s dominance. The spread of mining activity to more countries will help spread the risks and add security to the network.
Also, many people believe that China’s cryptocurrency ban could be one of the best news. They claim that without China’s control over the market and declining market confidence, the market will no longer respond to bad news from China as violently as before.
Along with China, another figure who has great power over market sentiment is Elon Musk. His speeches have caused a stir in the cryptocurrency market in recent months. The price of Bitcoin plummeted after it announced that Tesla will stop accepting Bitcoin. But Musk’s influence in the market is waning as investors begin to ignore his incessant tweets. This could also apply to China.
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