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China crypto crackdown showcases global unease with asset class

The market saw a selloff of digital currencies.
A worker inspects Bitcoin mining machines. Image: Christinne Muschi, Bloomberg
China’s declared ban on cryptocurrencies Friday ignited a debate on whether it’s part of the fight for acceptance of the unregulated asset class or something more debilitating.

A selloff of digital currencies commenced after China’s central bank said all cryptocurrency-related transactions were illegal, according to a Q&A statement on the People’s Bank of China’s website. Bitcoin, the largest digital coin, fell as much as 8.9%, while Ether lost near 13%. The Bloomberg Galaxy Crypto Index, a gauge of some of the most-prominent cryptos, lost as much as 11%.

“It’s the latest move in a multi-year clampdown on Bitcoin and cryptocurrencies,” said Antoni Trenchev, managing partner and co-founder of Nexo, a crypto lender. “For now, Bitcoin can’t catch a break. Bitcoin is being bombarded from all sides.”

Here’s how market-watchers reacted:

Chen Arad, chief operating officer at crypto risk surveillance firm Solidus Labs: 

“Though China’s move is particularly dramatic, it reflects on similar concerns regulators globally are sharing surrounding crypto market integrity and its role in illicit activity. Manipulation and fraud is not unique to crypto but, as a new asset class, digital assets present new challenges and have more to prove to regulators and the public.”

Brent Donnelly, president of Spectra Markets, and a former HSBC FX trader: 

“Solana Summer is over, the Loot frenzy looks like a major peak for NFT (non-fungible token) mania, the El Salvador launch on September 7 was the ding dong high for BTC (predictably),” he wrote. “It will be interesting to see how crypto trades in Q4 in the face of reduced global monetary accommodation and a lack of fun stories. My guess is that crypto struggles for a while.”

Steven McClurg, chief investment officer at crypto fund-manager Valkyrie Investments: 

“China has banned crypto at least a dozen times this year. The volatility we are seeing today may be a knee-jerk reaction by some, but most market participants have already priced a China ban in from the beginning of the summer.”

Chris Dick, a London-based quant trader at crypto trading firm B2C2: 

“If the headlines are just stronger wording ahead of China’s own digital currency, or if China is just reiterating it’s stance on mining, then there is no lasting effect here,” he said. “If, on the other hand, the crackdown affects key market infrastructure such as the major exchanges then the market volatility is set to increase further.”

George Monaghan, analyst at GlobalData’s thematic team:

“China ruling crypto transactions illegal would be disastrous for the cryptocurrency sector. Being excluded from the world’s largest market is terrible for any product, and this is the strongest demonstration yet of China’s anti-crypto sentiment,” Monaghan said. “However, this isn’t the first time China has threatened action, and, thus far, it has failed to follow through. The next few weeks will be rough for crypto markets that were already on edge after the SEC’s recent comments, but only actual legislation will have a long-term effect.”

Alex Tapscott, managing director of the digital asset group at Ninepoint Partners:

“Veteran traders are conditioned to shrug off bad news from China and buy the dip, but could this time be different? There are a few reasons to think so,” including China’s tech crackdown, as well as its pursuit of its digital yuan, among other factors.

© 2021 Bloomberg L.P.

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“.. In 2018, an IMF report warned that cryptocurrencies could reduce the demand for fiat money and recommended “rigorous anti-money laundering and terrorist financing measures” to undermine this consumer behavior.

In addition, central banks are now trying to compete with the convenience of digital currencies by developing their own versions of the same kind. China recently released a “digital yuan” while the ECB has been working on a “digital euro” for some time.

It is expected, therefore, that regulators and central bankers around the world will increase regulatory and legal pressures against financial assets that are beyond their control.

Bitcoin has shown remarkable resilience to government action so far. For example, in countries like Morocco – where Bitcoins are completely banned – peer-to-peer trading in Bitcoin has nevertheless skyrocketed.”

With authoritarian oligarchy governments, not just China evolving ….crypto is vital for freedoms … many already confiscated through propaganda and even hyperboles for the naive

What is the significance of a monopoly on the issuence of currency if you cannot enforce it?

People who have been in the environment long enough realises that China has banned Bitcoin/Crypto for a number of years now. It is nothing new. Crypto has been recovering well after such sell-offs and emerged even stronger.

It is clear that China only wants to eradicate all competition to their own proposed digital currency.

Every year is the year that china bans bitcoin.

Its not about crypto facilitating crime. Its about money and control of money.

The Guptas has done thousands of large illegal transactions using our fiat banks and nothing happened. When the banks started getting heat about it they just closed the accounts. So what about the thousands of anc cadre’s that does the same non stop??

If the Chinese ( and everybody else ) stop the crime there would be no money to launder. Fiat or crypto.

There will be a lot of resistance but it is the new way of doing things. This means there are not much use for banks and third party interference. So obviously they will put up a fight to survive.

THE South AFrican BANKs just watched the GUPTAS blatantly steal.

Did Absolutely NOthing. Not even SARS have touched the Guptas.

FNB for one has blocked Crypto payments… protecting their space… Same bank that says they opening branches… how stupid are they…. when their competitors are becoming efficient by going digital.

So yes… you are right…. Banks are pretty much useless once crypto is mainstream….

If cryptos were useless, there would be no need to ban them. They would just fade away on their own.

But they keep going from strength to strength. Simply the best innovation in finance, ever. The 4th industrial revolution, no less.

Soon it will be obvious that this is a bus that nobody should miss catching. Those that don’t will be left miles behind.

Wait for the chinese government to fold and allow them existence.

Maybe not for a couple of years, but eventually for sure.

It’s going to be the equivalent of banning the Internet

End of comments.

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