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China has intensified its crackdown on cryptocurrencies, as the country’s central bank, securities regulators and supreme court on Friday declared all crypto-related transactions illegal.
Though the world’s second largest economy has been rolling out different measures to constrain crypto trading and mining since 2013, the latest crackdown is by far the most harsh and comprehensive one, industry experts said.
As China continues to tighten its capital control, the regulators “have gotten smarter and more educated,” Chris Matta, president of crypto fund 3iQ BTCQ, -5.45% Digital Assets told MarketWatch in a phone interview. “It’s very difficult to ban crypto.”
China’s most recent measures particularly target over-the-counter crypto services, crypto derivatives exchanges and offshore crypto exchanges that have businesses or operations in the country, according to Matta.
The cryptocurrency market has slumped following the news, with bitcoin BTCUSD, -4.78% falling more than 9%, and ether ETHUSD, -6.84% dropping more than 12%. Other smaller coins such as XRP XRPUSD, -5.84%, Cardano ADAUSD, +1.59%, Polkadot DOTUSD, -6.30%, and Dogecoin DOGEUSD, -4.97% also recorded losses.
However, most analysts expect the sell-offs to be short-term.
Trading volumes on Friday point to buying support for bitcoin and ether, Armando Aguilar, digital asset strategist at research firm Fundstrat Global Advisors wrote in his notes. It shows that “traders/investors are accustomed to China FUD and similar ‘shock news,’ Aguilar wrote. FUD is a crypto slang that refers to fear, uncertainty, and doubt.
“While each time this [China’s crackdown] happens, the markets react with a price drop, each time the effect is smaller and more short-lived,” Ulrik K.Lykke, executive director at crypto hedge fund ARK36 wrote in email. “The ‘China bans Bitcoin’ story has gained almost a meme-like status in the Bitcoin community because of this.”
Greg King, founder and CEO at crypto fund Osprey Funds, said that “there’s strong demand for cryptocurrencies on a global basis, and China’s only part of that.”
However, aside from the price impact, China’s most recent strike on cryptocurrency may further change the global distribution of the crypto industry.
After China started cracking down on crypto mining in May, some Chinese miners have been migrating to places such as the U.S. and Kazakhstan. Crypto exchanges may double down their efforts to move out of China as well, industry experts said.
Crypto exchanges out of China “will potentially look to relocate to other crypto-friendly locations in Asia Pacific or other destinations like the Bahamas,” Fundstrats’s Aguilar wrote.
According to the latest statement from People’s Bank of China, employees in mainland China that work for overseas crypto exchanges, or anyone that provides services such as market and technical support for such exchanges, “shall be subjected to penalty according to the law.”
Crypto derivatives exchange FTX announced today that it moved its headquarters to the Bahamas from Hong Kong.
Asia’s crypto trading volume currently accounts for 45% of the global volume. Crypto exchanges including Binance, Huobi and OKEx have the largest market share in mainland China, while FTX and Bitmex dominate Hong Kong, according to Fundstrats.