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Should China’s Crypto Crackdown Keep You from Bitcoin?


Dec. 9 2019, Updated 3:58 p.m. ET

If you’re going to invest in cryptocurrency, you’d better toughen up because it’s not for the faint of heart. Volatility is the norm in crypto, and any event can cause a ripple effect. Unlike large-cap stocks, Bitcoin (BTC) will easily move 5% or even 10% in a day.

When these outsized moves happen, they’re usually based on a news event. For instance, Bitcoin’s recent slide to the $7,000 level had a news catalyst. Specifically, Bitcoin’s 31% sell-off in November was precipitated by China’s vow to crack down on “illegal” crypto exchanges. But should this event deter traders from holding Bitcoin now?

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Déjà vu for Bitcoin in China

By threatening “illegal” cryptocurrency exchanges, I suspect that the People’s Bank of China is actually targeting smaller exchanges. Bitcoin and the blockchain are too popular in China for the government to shut down all crypto exchanges.

So far, my theory has been correct. The Chinese cryptocurrency exchanges that have been shut down in the latest purge are Bituex, Bitsoda, Biss, and Akdex. If you’ve never heard of these exchanges, I wouldn’t be surprised. The loss of these small exchanges is regrettable, but it’s particularly impactful.

Along with the above-board exchanges, China has also vowed to clamp down on over-the-counter trading platforms. These are basically the Wild West of the crypto-verse. They’re unregulated and aren’t a good representation of what Bitcoin investors want: transparency and legitimacy.

In any case, crypto historians should be feeling a sense of déjà vu. As you may recall, the People’s Bank of China initiated a very similar crackdown in September 2017. Crypto critics called for the death of Bitcoin after that event. But Bitcoin’s alive and well on the cusp of 2020.

China green-lights Bitcoin

While the crypto doubters have obsessed over the crackdown threat, they’ve completely ignored the good news. Chinese President Xi Jinping made an announcement encouraging the 1.4 billion people in China to use blockchain technology.

President Xi declared, “We must take blockchain as an important breakthrough for independent innovation of core technologies… increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.”

Naysayers will be quick to point out that he used the word “blockchain” and not “Bitcoin.” I feel that this is nitpicking because Bitcoin is part of the fabric of blockchain technology. Bitcoin is the reason that the digital ledger was created and exists today.

Even without Xi’s declaration, the blockchain will continue to thrive in China. Alibaba (BABA), Baidu (BIDU), and Tencent (TCEHY) all have blockchain projects underway. Those three companies collect more than $115 billion in revenues every year. Clearly, China is stepping up its blockchain game.

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Indeed, the whole world seems to be using crypto and the blockchain lately. In US dollar terms, the global daily transaction volume of Bitcoin was only around $315 million back in January of 2017. As of December 2019, that number has reached $1 billion. During that same timeframe, the hash rate (or the computing power used) on the Bitcoin network has increased 500-fold.

Ignore the rumors

I recommend sticking to your plan. Ignore all the noise and distractions concerning Bitcoin. For instance, there were rumors circulating that the Chinese police had raided the offices of Binance and Bithumb. Both of these exchanges denied the rumors, and so far, it appears that they’re still operating.

Folks who don’t understand Bitcoin will use any available excuse to criticize it. We’ve seen the Chinese “crypto crackdown” before, and it didn’t kill Bitcoin. I can’t guarantee that November 25’s short-term low of $6,500 was Bitcoin’s long-term bottom.

I’m proud to stand behind the technology that Bitcoin represents, though. And China stands behind it, too.


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