Bloomberg’s headline from Sunday, Sept. 26, pretty much says it all: “Chinese Regulators Are Serious About Crypto Ban This Time.”
Sound familiar?
It should. We’ve heard this before, though it appears authorities may be a little more serious this time:
The People’s Bank of China issued its Friday missive along with nine other institutions, including the supreme court, the police and the internet and securities watchdogs, a signal that enforcement may come from all corners. It also closed the longstanding loophole that enabled citizens to maintain accounts with offshore exchanges such as Huobi, and forbid the platforms to hire locally for roles like marketing, tech and payment, limiting their ability to serve Chinese customers.
The price of Bitcoin (BTC) slumped on the news, though it bounced back over the weekend. After touching the $40,900 handle, it’s trading near $43,000 as of Monday afternoon.
Note, too, that Chinese authorities have also recently banned the Marvel movie “Shang-Chi and the Legend of the Ten Rings” as well as “effeminate men.”
NBC News’ Michelle Yang offered a compelling case for linkage:
Though bans on effeminate men and cryptocurrency might appear to have little in common, they are both emblematic of the way Xi and his party want to keep China free of foreign and individualistic influences, with these crackdowns furthering his goal of greater control over all aspects of Chinese economy, culture and education. While the displays of power are deeply damaging for the individuals harmed by these moves, the fact that the isolationist measures are becoming more drastic has a silver lining: They’re a sign of how increasingly difficult and elusive such government control is in a globalized economy and social media age.
Indeed.
Meanwhile, Sam Blumenfeld summarized recent price action for Weiss Crypto Alert readers on Friday:
Bitcoin and the broader crypto market are trading lower so far today after a brief relief bounce. Much of the pullback can be blamed on negative news from China.
First came the Evergrande Group fears. With Bitcoin’s correlation to the S&P 500 so high, the broad market began shaking.
Now, a post on the People’s Bank of China’s (PBOC) website says, “services offering trading, order matching, token issuance and derivatives for virtual currencies are strictly prohibited.”
In the face of an ongoing correction, traders began letting these headlines fuel their fear, uncertainty and doubt (FUD) ... and control their trading.
This is not the first PBOC attack on crypto. China’s stance against crypto isn’t new, and the country has consistently repeated that it’s fully against future implementation. The crypto market has seen these China-driven pullbacks before, and they have largely failed to stifle prices over prolonged periods in the past.
Our opinion: This price action is not immediately concerning unless it forms a pattern of consistent lower highs and lower lows. Long-term fundamentals are still holding up, so we’re expecting this to be a short-lived correction.
The King of Crypto is holding its value better than most altcoins, as is expected given its status as the most established cryptocurrency and relative safe haven. Despite the negative move today, it is positive to see an immediate relief bounce from $40,700 back to $42,500.
Still, Bitcoin fell significantly below its 21-day moving average. It’ll need to recover past it to regain bullish momentum.
Here’s Bitcoin’s price in U.S. dollars via Coinbase Global Inc. (Nasdaq: COIN):
Ethereum is faring worse than Bitcoin in this pullback, but so is most of the crypto market. Like Bitcoin, it fell decisively below its 21-day moving average and failed to find support. It even dipped below the psychologically significant $3,000 level.
But Ethereum should see positive pricing pressure as more supply is burned. Since the EIP-1559 upgrade in early August, nearly 360,000 ETH have been burned. Its much-anticipated ETH 2.0 upgrade is predicted to roll out in 2022, and over 7 million ETH are currently staked on the platform.
Here’s Ethereum’s price in U.S. dollars via Coinbase:
Here’s Sam’s take on the bigger picture:
Much of the news dominating today’s headlines addresses China’s resistance against cryptocurrency adoption. While the market has pulled back, the reaction is likely overstated. China is simply reaffirming its stance from 2017 outlawing business dealings.
Bitcoin’s correlation with the S&P 500 has been higher than usual lately, but that is likely driven by macroeconomic uncertainty. However, its correlation fluctuates over time, and it remains a hedge against an uncertain future caused by reckless fiscal and monetary policies along with other macroeconomic risks.
Meanwhile, crypto adoption is expanding without China, and Twitter’s crypto feature rollout is an important step for the industry.
Twitter has over 300 million active users, and these functionalities will certainly stimulate greater interest. More companies will likely follow Twitter’s lead, which will drive more transactions and even greater community involvement. That should help prices moving forward.
Click here to follow the quickly developing cryptocurrency revolution with Sam and the Weiss Crypto Alert team.
Best wishes,
David Dittman
