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China’s Crypto Bans Aren’t Done Yet

What Could Be Coming for the International Crypto Market?

Regulatory warmth could quickly transcend China and inflict different main nations, even these with probably the most liberal economies just like the US.

Then again, new laws are in reality vital to comprehend the subsequent spherical of adoption in cryptocurrency, as a result of potential retail traders are nonetheless reluctant to take a position as a result of ongoing authorized uncertainties. But, future laws could not by default include a pleasant hand shake at the start.

Environmental considerations and ongoing power shortages could push governments to go ruthlessly in opposition to cryptocurrency mining. Apart from that, in an effort to keep up their political and financial energy, they might ban cryptocurrency exchanges altogether.

Furthermore, many governments are quickly anticipated to legally outline what a cryptocurrency is by way of its utility and its decentralization, and both classify no matter falls out of that definition as a safety or ban them completely.

Let’s focus on beneath the attainable implications of such enforcements and the way the crypto trade is already responding to those restrictions as a way to survive and maintain its progress.

1. Mining Restrictions

China’s ban on cryptocurrency mining has compelled giant scale Chinese language miners to flee abroad. Lots of them are presently shifting their mining services to Texas. The governor of Texas, Greg Abbott is an avid supporter of cryptocurrency which he exhibits by way of his promotional tweets.

Texas additionally has among the most cost-effective power costs on the planet, attributable to its deregulated energy grid.

Except for the US, Chinese language mining corporations are usually shifting their machines to nations like Kazakhstan and Russia these days.

Nevertheless, there is no such thing as a assure that these nations will stay crypto-friendly sooner or later, contemplating the quickly rising power prices. If these governments additionally throw within the towel finally, mineable cryptocurrencies like Bitcoin and Ethereum (till it completes its migration to staking expertise) may get affected fairly adversely.

This might in return profit cryptocurrencies which are staked, as they devour negligible power to function their community and create new cash. At present, the preferred staking cryptocurrencies available in the market are Cardano, Solana, Avax, Binance Coin, and Polkadot.

However I’m not saying Bitcoin and Ethereum may ever disappear. I feel they’re too large and too firmly established by now, with completely functioning applied sciences and shouldering a $2 trillion ecosystem on their networks. If these two disappear, I feel there can be no cryptocurrency.

2. Accessing Restrictions

Cryptocurrency exchanges are the place you entry cryptocurrency by wiring your fiat money to the trade’s checking account after which shopping for cryptocurrency within the trade with that money. Equally, you exit cryptocurrency by wiring fiat from the trade again to your checking account.

Following the latest cryptocurrency bans in September 2021, cryptocurrency exchanges in China are rebasing offshore, after dropping home clients from their rosters.

Singapore presently looms as a first-rate go-to place for cryptocurrency exchanges. It’s reported to have the clearest laws and it needs to draw as many digital fintech corporations as attainable.

For instance, the Chinese language trade Huobi, which is the third largest international trade, is presently relocating substantial components of its operations to Singapore.

Since cryptocurrency is a decentralized system with none central governing authority, the community can’t be shut down by anybody. So so long as governments don’t shut down the worldwide web, there has not been an efficient method to cease cryptocurrencies.

As a consequence, cryptocurrency has thus far succeeded in creating merchandise that overcome the bans of governments.

One accomplishment is “decentralized exchanges”, autonomous exchanges on the net, which aren’t owned and operated by any entity. A decentralized trade is a typical DeFi product, which works autonomously and permits for direct, peer-to-peer cryptocurrency buying and selling with one other individual on the net.

Since it’s not owned by any firm, and doesn’t host any direct people to knock the doorways of, so governments are but unable to impose legal guidelines on them.

In accordance with China-based information retailers, Chinese language cryptocurrency customers at the moment are actively discussing study utilizing DeFi platforms in response to the newest trade bans.

As China alone constitutes ⅓ of complete cryptocurrency customers on the planet, demand for DeFi could skyrocket within the coming days. And if extra nations ban typical crypto exchanges, DeFi may exceed the scale of conventional trade volumes.

Nevertheless, even with DeFi and decentralized exchanges, there could also be dangers. For instance, the US Securities and Trade Fee (SEC) began investigating the most important decentralized trade, Uniswap earlier this month, by which it outright disregarded the “decentralized” label and proceeded to knock on the doorways of the software program builders behind the venture.

This authorized motion was deemed attainable as a result of regardless of working on a distributed community with out a central server, decentralized exchanges can nonetheless be managed by way of their builders.

3. Legalization Restrictions

Within the US, the Securities and Commissions Trade (SEC) is predicted to legally outline what a cryptocurrency is by way of its utility and its decentralization, and both classify no matter falls out of that definition as a safety or ban them altogether.

A cryptocurrency is unlikely to exist as a safety as a result of a safety is a centrally regulated funding contract that represents a fractional possession proper and is backed by an asset.

Cryptocurrencies aren’t backed with every other property and they don’t give possession rights to the entity that points the cryptocurrency. 

Because the SEC nonetheless constitutes the dominant drive in international finance, such a regulation has the potential to wipe out a big portion of cryptocurrencies from the market.

I personally suppose this might be helpful for the cryptocurrency market, as a result of such a clearance may give tens of millions of potential traders the readability and assurance they should spend money on cryptocurrency.

At the same time as a veteran crypto investor, I really feel like I’ve to wager on each sq. on a roulette desk after I wish to spend money on some cryptocurrencies.

As a result of there are simply too many alternate options providing the identical performance, and as all are of their early levels of improvement, no person can know which of them of these will succeed. If laws may remove all people who legally fail to be a cryptocurrency, I may make investments extra within the remaining ones with better confidence.

Nevertheless, it’s best to remember that cryptocurrencies aren’t like inventory corporations that authorities can defunct in in the future. They’re extra like “digital commodities”, digital property that reside on the net, similar to the bodily commodities of the earth.

The software program code of most digital currencies are open to the general public, so even when a developer staff has to desert a cryptocurrency venture some day, it could nonetheless stay on the net for an additional staff to take over and develop the venture in the future.

They don’t have fastened prices like corporations, in order that they don’t want money stream to outlive. They’ll simply stay on any DeFi platform without end.

Above all else, and regardless of all bans and restrictions, I imagine market forces will doubtless come to the rescue in the long term. There may be a variety of demand for cryptocurrencies everywhere in the world, so there’s some huge cash getting into this market.

If governments act too restrictive, they might miss out on billions of {dollars} of cryptocurrency investments, which might as a substitute stream to nations that implement crypto-friendly laws and permit easy accessibility for cryptocurrencies.

How Do Prices React to Regulations and Bans?

Regulations almost always caused price crashes for cryptocurrencies in the past. However, these have all been short-term reactions. Every time, prices managed to get up from the ground and go to new all time highs.

I have been in the cryptocurrency space since 2017 and I keep experiencing the same cycle.  News regarding regulations have historically been spread out either right before a massive cryptocurrency spike to scare out weak, amateur investors OR right after a massive run to start a devastating, long-term downtrend.

As a recent example, cryptocurrencies had a crazy run upwards in the first four months of 2021, during which the price of Bitcoin spiked from $20,000 to $65,000 and Ethereum from $500 to $4,500, while other cryptocurrencies like Cardano, Binance Coin, Avax, and Solana enjoyed at least 20x gains.

This explosive price action was preceded by a series of negative events and news during late 2020. The SEC filed a lawsuit against the Tether stablecoin (the 5th largest cryptocurrency) in September and the XRP coin (used to be the 3rd largest cryptocurrency) in December, on the charges that XRP was an unregistered security while Tether was not backed with enough real-world assets.

But nothing material happened at the end and the crazy run of 2021 followed.

The epic 2017 cryptocurrency run also started with a regulatory crackdown at the beginning of that year when nothing material happened, and then the year-long market rally ensued. This rally was followed with restrictive regulations and their rumors throughout 2018 and 2019, during which cryptocurrency prices dropped by at least 85%.

So if history is to repeat itself, the latest Chinese crackdown on digital currencies may suggest that new all-time high prices for cryptocurrencies may be around the corner in the coming months. And again if history repeats, those new record-high prices are then to be followed with regulations making a return to the agenda of regulators, which could crash prices back.

Still, there is never a guarantee in which direction markets will move. Markets are not always rational; prices may still go up when you see new restrictions or bans coming, or they may fall without any government taking any action.

What If Cryptocurrency Gets Banned in Your Country?

  • Accessing your cryptocurrency: If exchanges get banned in your country or jurisdiction and you want to hold on to your cryptocurrency investment, you need to download a compatible software wallet into your computer, browser, or smartphone, or buy a compatible hardware wallet, and transfer your crypto assets from the closing exchange to that wallet to be able to access your investment later. Separating your investment under different platforms, such as exchanges and wallets would be a wise idea to distribute the risk of access to your assets.
  • Buying new cryptocurrency: As long as there is demand for a good, people will eventually find each other to exchange that good. In China, for example, cryptocurrency exchange bans brought back over-the-counter trading, where people buy cryptocurrency from each other in exchange for physical cash. The actual cryptocurrency transfer is made online from a digital wallet to another, but the cash exchange is physically made offline. This of course raises safety concerns in transactions such as getting robbed etc. To overcome that risk, Chinese people can also access global cryptocurrency exchanges using Virtual Private Networks (VPN). So in case the same happens in your own country, offline trading venues will probably pop out like mushrooms from the ground. In addition, if you can manage to access a VPN, you can also reach the conventional cryptocurrency exchanges to wire them money and buy crypto.
  • Trading your cryptocurrency: Once you buy cryptocurrency or are able to access your crypto holdings, you can use decentralized exchanges like Uniswap to trade crypto, or again, you can trade on conventional exchanges using a VPN.
  • Cashing your cryptocurrency: Even if you use decentralized exchanges, you still need a conventional, centralized exchange when you want to cash your cryptocurrency, unless you have made arrangements for an over-the-counter trade. And even after you manage to transfer your fiat funds to their final destination in your local bank account, you may this time get faced with regulatory hurdles. It may get blocked or investigated for anti-money-laundering or taxing purposes by your government. You have to consult your local attorney or advisor to get actual, legal advice regarding overseas money transfers.

The Bottom Line

China has to date served as the testbed for possible future regulations in your own country or jurisdiction. By closely following what happens there, we may prepare ourselves and make our plan accordingly to overcome those restrictions and bans.

Over-the-counter trading, peer-to-peer trading, VPNs, digital wallets, and DeFi platforms can serve as our ammunition for tackling any cryptocurrency bans in our jurisdiction. As long as there is demand for cryptocurrency, some party will respond and satisfy this demand with more advanced, higher-tech solutions.

Apart from exchanging, cryptocurrency mining remains as another hot item of regulatory pressure. If pressures on mining ever turns to a global-scale crackdown, it may be wise to diversify your cryptocurrency holdings between mining and staking cryptocurrencies.

Regardless, everything is unclear about which countries will follow China in terms of restricting or banning cryptocurrency, and how far they will go with that.

You have to take your own precautions beforehand by keeping an eye on the regulatory developments specific to your jurisdiction and to your cryptocurrency investment, both before and after you invest in crypto.

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