China Bans Crypto Again. And This Time It’s No Different
China appears to be suffering from puppy dog syndrome. If it doesn’t get enough attention, it just starts yipping louder. Case in point: The markets quickly shrugged off news that China Evergrande Group was teetering towards collapse. So the country followed it up by rolling out the ol’ reliable “China bans crypto” headline. And in a flash, the markets started paying attention to China again. Oh joy.
Here’s what went down… And why crypto investors should shrug off this news too.
Earlier this week news surfaced that China Evergrande Group could collapse under a $300 billion mountain of debt. This is indeed a big deal, mind you. Evergrande is the second-largest property developer in the most populated county in the world. China could be on the brink of a Lehman Brothers-esque economic disaster. Or maybe not…
But whatever analogy folks want to use, there’s no denying that the Evergrande saga is a big deal. And it could have ripple effects around the world’s markets. After all, Evergrande debt is reportedly around 2% of the entire gross domestic product of China.
What triggered this was a major slowdown in property markets in China. And the timing couldn’t have been much worse. The Chinese government recently started a campaign to stop lending to overleveraged developers in the country. When these details made the rounds at the beginning of the week the markets reacted swiftly and decisively. The Dow fell more than 500 points – or 1.7% on Monday. And the route continued the following day. The Dow shed 614 points – or 1.8%.
The news was big enough to rattle the crypto markets too. Bitcoin and Ethereum both dropped more than 10% during that same time. Then magically, everything went back to normal…
Why China Bans Crypto all the Time
The markets quickly digested and made sense of the Evergrande debacle. In just a couple days, everyone figured out that China was in a natural economic slowdown. And should Evergrande collapse under the weight of its own debt, well, that’d be on China. The rest of the world should be able to deal with that if or when the time comes.
With that, the sell-off ceased. The markets rebounded. And folks started buying those risky assets again, like Bitcoin and Ethereum. Apparently, China was none too pleased about this. So the country got together its most powerful regulators to make a “big” announcement. They dusted off the China bans crypto storyline again and sank the crypto markets one more time.
This time is no different than the last China crypto ban. China will be intensifying its crackdown. There’s a blanket ban on all crypto transactions. No more mining crypto. And just like last time, no new laws or rules have been officially passed. To be fair though, that’s not always necessary under authoritarian rule.
But just for good measure, we unearthed this quote from crypto expert Andy Snyder the last time the China bans crypto headlines rolled around last May.
Well, it’s not exactly news. What’s happened is a few Chinese watchdog agencies issued a warning about the speculative nature of crypto. That’s nothing new.
In fact, no new laws or rules were passed. The agencies merely restated laws that have been in place since 2013 – when Beijing announced Bitcoin was not a real currency and financial institutions could not transact with it.
The Chinese government doesn’t like crypto. That’s the long and short of it. In fact, it’s not unlikely they fear it.
Why It’s Time to Embrace Crypto
China has a digital currency of its own. The digital Yuan has been around for a little while now. And crypto has the potential to disrupt that. So the government decided to do what it does best: Ban it.
China has an impressive track record for banning disruptive technologies. There’s no Twitter (Nasdaq: TWTR) or Facebook (Nasdaq: FB) in China. Instead, they have Weibo, which follows the strict censorship rules set by the government. Nobody in China can just “Google” information either. At least not without a VPN.
However, in the process of maintaining its stranglehold on what it deems should be accessible, China has inadvertently given a cue to investors. Especially in the realm of technology.
Investors who sell on China “bans” usually end up bummed… pic.twitter.com/OKlBe9yU9q
— Dan Morehead (@dan_pantera) May 26, 2021
The volatility in price isn’t going away any time soon. There will continue to be big swings in value for the foreseeable future. That goes for the big ones like Bitcoin and Ethereum just as much as the more speculative ones like Cosmos or Solana. But investors should take note of the message above from Dan Morehead. When China bans crypto – or seemingly anything – it might be time to take a closer look and consider investing.
China Bans Crypto: The Bottom Line
Ten agencies – including the central bank and banking, securities and foreign exchange regulators – have all vowed to root out “illegal” crypto activity. The “illegal” part is key. The last China bans crypto saga simply made it so financial institutions and payment companies couldn’t provide crypto-related services.
That’s not really any different from how crypto was treated here in the U.S. a few years ago. But the key omission here is the law on the books in China only mention Bitcoin by name. So what exactly these agencies plan on rooting out remains vague. But I’m sure we’ll get more info the next time China bans crypto.
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About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dog, Dorito.