The $2 Trillion cryptocurrency market has been sentiment and news-driven, consistently. Explanations range from (a) high bot-driven trading activity (b) high leverage levels from unregulated exchanges © 24/7 trading activity with increased DEX access and retail participation to (d) regulatory uncertainties.
Ray Dalio has repeatedly emphasized that as the crypto market grows, the risk of being `outlawed` mainly because of the decentralization aspect, increases.
`If crypto is successful, regulation will kill it` Ray Dalio
The West deals with such scary-disruptive economic and business threats in a very different way than China. This statement is as neutral as can be and yet captures the up-to-date dealings with cryptocurrencies of China and the West.
The latest crypto ban news from the CCP and the PBOC, reiterating their stance to monitor transactions and to protect retail from scams, is no surprise to me. Crypto exchanges were banned from China back in 2017 and the Chinese authorities know that the savvier Chinese have found ways to transact in crypto outside of China. This is no different from banning Casinos in China and knowing that the Chinese that want to play will find their way to Macau and other such places.
The way I think of the latest news is that it is 100% consistent with the CCP`s and PBOC`s intention to protect the hoi polloi from scams by outlawing access and to maintain as much control as possible of transactions. Let’s not forget that in less than a decade, China dealt with toxic peer-to-peer loans that hurt unsophisticated retail, then with a huge number of ICO scams to which Chinese retail fell prey too.
The more sophisticated Chinese will pay the cost of circumventing the crypto transaction ban and find their ways outside of China. While speaking briefly this Sunday to Alvin Foo, co-founder of DAOventures in Shanghai and professionally involved in the cryptocurrency world, it became clear that the possession of Cryptocurrencies is not illegal. Richard Turrin, author of the best-selling book Cashless also based in Shanghai, refers to Chinese black markets as the natural societal-market reaction to any and every ban.
Some of the exchanges that had found ways to serve Chinese citizens after the 2017 ban have already started halting the opening of new accounts for Chinese citizens after the recent announcements. Where will Chinese whales or small fish keep their crypto holdings going forward, is to be seen. Cointelegraph already reports increased activity on dYdY DEX. The daily volume on Sunday facilitated on dYdY, surpassed $4.3 Billion. Looking at DefiPulse data I don't see any significant overall shift to DEXs. The dust will settle soon, and the markets will find ways to serve this need.
Now if we look at the West, crypto exchange businesses stand to gain from this shift. Western media have already gained as negative stories sell. It is worth highlighting the scaled open-source Western initiatives, Wikipedia and Reddit that have been banned in China, and again those with VPN access do circumvent the ban.
The West has mature financial market regulations and is using them as a threat for illegal crypto business activities. Illegal naturally, based on existing regulatory frameworks and retrofitting. The SEC will use the Howey Test and any other securities law violations, to scare the markets by going after large coins that resemble securities. It will go after Coinbase`s lending product and block its launch based on an intention to sue them.
Historically, the West shows its regulatory teeth and goes after illegal activities based on existing regulations. But when adoption can’t be fenced, the regulators succumb (whether we reach that point with crypto is a big question mark still). In a recent great discussion about DAOs (Decentralized Autonomous Organizations) Canadian finance major and legal expert, Han Verstraete founder of Otonomos reminded us that the use of fax machines for advertising was illegal until the late 90s. Yet businesses continued to use them until the use was legalized.
Based on the 2020 Chainalysis Geography of Cryptocurrency report, China was amongst the top ten countries in their Global adoption index. Looking at the breakdown of the metrics, it seems that China had a high weighting because of its p2p exchange trade volume. We will keep an eye on the upcoming 2021 report over the next couple of days which will reveal changes to Chinese activity up until now. It is highly probable that China`s ranking may have moved up and prompted the recent reminder to Chinese retail which may have increased the value of on-chain transactions.
Clearly, p2p trading is extremely difficult to ban, and with all the available hardware wallets and self-sovereign wallets, the Chinese that believe in or need cryptocurrencies will easily find ways to obtain them.
While China is protecting Chinese retail from scams and excessive gambling in cryptocurrencies with these moves, the development of the Internet of money is unstoppable despite its unsettling governance built-in attributes. Open source is permeating the world slowly and gradually. It will change the internet and organizational structures. To what extent and in what exact form is unknown.
Ironically, the West will now pride itself on its openness to open-source code and initiatives.
Listen to a 5yr short old video and a recent long video discussion to see the general direction the world is heading to.
- `Bitcoin -the internet of money` short by Andreas Antonopoulos from 2016 to start understanding why Bitcoin and controlling money flows cannot co-exist.
- Why Bother With DAOs? A discussion organized by Pillar.io
Consider subscribing to the weekly newsletter `The Future of Money`by Henri Arslanian based in Hong Kong to keep up with crypto insights coming from the East.
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