Bitcoin and Other Cryptocurrencies Crash Following Chinese Crackdown
Chinese regulators have launched a widespread crackdown on blockchain and cryptocurrency in recent weeks, causing Bitcoin’s price to plummet to its lowest in six months. This comes weeks after a highly publicized speech by President Xi Jinping calling for more innovation in blockchain technology. The blockchain community largely received Xi’s comments with optimism, and the price of Bitcoin skyrocketed, rising almost 40%, and briefly breaking the $10,000 mark. Many analysts speculated that the speech marked a positive turning point in China’s previously hostile attitude towards cryptocurrencies.
However, it appears that President Xi seeks to set the record straight. Speaking on CCTV1, he made his attitudes towards cryptocurrencies clear, calling them “financial fraud” and “illegal Ponzi schemes.” Chinese regulators followed up Xi’s most recent comments with an accelerated crackdown on the remaining cryptocurrencies in the country. The Shanghai Bureau of the People’s Bank of China (PBOC) issued a notice that any remaining businesses in the city that offer any cryptocurrency services are to close. The Block reported that Binance’s office in Shanghai closed down following a visit by the authorities.
These developments show that the crypto community’s quick embrace of President Xi and the subsequent expectations regarding cryptocurrency in the country were misguided. If anything, the embrace was counterproductive for the community. The intense speculation and market overreaction that followed Xi’s comments probably played a role in the decision to accelerate the crackdown. Chinese authorities have now made their definitively anti-crypto stance very clear.
Bitcoin has received the news very negatively, with its price plunging to its lowest levels in six months, even lower than it was before the speculative surge from President Xi’s comments. On November 25, the price dropped well below the psychological $7,000 mark, bottoming out at $6,559, according to Coindesk. Other cryptocurrencies on the market followed Bitcoin into the red, as the market entered into a new state of ‘extreme fear,’ according to the Crypto Fear & Greed Index.
What does this mean?
The cryptocurrency market received a powerful reality check regarding blockchain in China. Chinese officials have demonstrated that they are no friend to crypto and that they have a tremendous influence on the movements of the market. The community would be better served if it learned its lesson.
The Communist Party has a tight and extremely centralized grip on the country, and it should surprise no one that they would be very hostile to cryptocurrency’s inherently decentralized nature which goes against its interests. China is interested in blockchain for the technological capabilities in record keeping and information technology, not to decentralize finance outside its control. It is currently developing the digital renminbi that it will use to gain an unprecedented level of access to the financial information of its citizens. The country has no plans to embrace other forms of cryptocurrency that it cannot directly control or use to expand state power.
The crypto community should recognize that China is working to subvert blockchain technology from a democratized technology into something that will give the Communist Party an even tighter, and centralized, grip on the country and its economy. A country that seeks to release a “Social Credit System” to monitor every aspect of its citizen’s life is not, nor will it ever be, a friend to a decentralized blockchain.