6 Thoughts Following “China Bans Crypto? FUD vs. Fact” — Webinar Held 6/1/2021

On June 1, we held an insightful webinar with several crypto China experts including Omer Ozden, CEO of RockTree Capital, Alex Thorn, Head of Firmwide Research at Galaxy Digital, and Haseeb Qureshi, Managing Partner at Dragonfly Capital, co-hosted by Mati Greenspan, my partner at Quantum Economics. We covered multiple topics over the course of the hour, from China’s crackdown on bitcoin trading and mining, how that will impact the digital currency, and other topics. You can view a replay of the webinar below:

Or you can read our six highlights below (co-written with K. Alex Brown):

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1. China Is Cracking Down On Bitcoin Mining and Trading

On May 18, China banned financial institutions from providing services related to cryptocurrency transactions. China issued this directive based on its concern about speculative trading, the safety of people’s economic well-being, and worry about the potential for a general disruption to the financial market. The fact that the statement was made by Chinese Vice Premier Liu He, a senior official, is notable. However, China did not issue a declaration that individuals are not allowed to hold cryptocurrencies.

Given the uncertainty of the impact of the directive, the crypto market was hit with a serious case of “Fear, Uncertainty, and Doubt (FUD)” that it is still dealing with a month alter.

2. China’s Suppression of Cryptocurrency Activities Also Focused On Crypto Mining

Omer believes the mining crackdown emanates from three issues the Chinese government has with mining. The first concern relates to the environmental impact of the mining business, particularly mining machines powered by coal in places like Inner Mongolia, where mining has been banned.

China is also concerned about mining bitcoins in places where energy is less abundant. Lastly, the nation is concerned about the amount of speculative money being invested in the mining industry.

3. Bitcoin Miners Are Migrating Away From China

The recent directive is causing miners to move operations outside of China, which had been generating as much as 75% of Bitcoin’s hash rate (the total computational power used to mine crypto). China’s cheap electricity and mining-optimized chips have made it an ideal place for mining. However, the latest directives from the government are causing an exodus of miners from China, as evidenced by the nation’s falling hash rate and the flood of mining machines being sold on the secondary market. Alex believes that many miners will move to North America, with Kazakhstan, Russia, and Pakistan also likely to benefit from new mining operations. The only unknown is how much of the Chinese mining industry will leave China.

4. In The Long-Term, China’s Crackdown Will Benefit Bitcoin

In the short-term, the market, which does not like uncertainty, has traded down significantly from the news. The statements from China, coupled with the negative news from Elon Musk, has put a pall over the market.

However, in the long-term, the panelists agreed that these developments from China will help bitcoin. Specifically, the fact that bitcoin mining will become more diversified around the world is viewed as very positive, as many were concerned about China’s growing dominance in mining.

5. The Chinese Government Does Not Speak With One Single Mind

Haseeb warned against overreacting to the news, stating that he “ … strongly cautions against trying to think about China as a monolithic actor that has a single mind… in reality, the Chinese government has a bunch of different interests, different parties, [etc].”

Many people in China, including various parts of the government, believe that Bitcoin mining benefits the economy, generates tax revenue, and should be viewed as a positive industry. So the true impact of any individual statement shouldn’t be over estimated.

6. Don’t Cross The Chinese Red Line

One thing is certain for anybody doing business in China is the firm understanding that one should not cross “The Chinese Red Line,” which can lead to various punishments ranging from criminal arrest to severely negative economic consequences. The problem with the so-called Red Line is that there it’s constantly shifting. So industry players need to develop talent for reading between the lines to truly understand the government’s true intentions.

But history has shown that when the Chinese government focuses on a space, such as they are doing now in crypto, it is wise to be cautious and wait for the dust to settle and the new Red Line to become more apparent.

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Source: https://medium.com/quantum-economics/6-thoughts-following-china-bans-crypto-fud-vs-fact-webinar-held-6-1-2021-9ef66dba4619?source=rss——-8—————–cryptocurrency