China’s ongoing crusade against bitcoin: ‘Negative in the short term’, but positive in the future?

On Monday, the news emerged that the People's Bank of China (BPC) ramped up its restrictions on services and transactions related to cryptocurrencies such as bitcoin in a meeting with representatives of the largest banks and payment services companies of the Asian giant. As reported by the institution, state banks and Alipay were banned from opening and registering accounts for related activities, as well as offering products or services to enable trading, clearing and cashing in on cryptos.

Added to this news is that the ‘hashrate’ -unit by which the computing power of the equipment used to obtain cryptocurrencies is measured- which in China is falling significantly. The cause is the pressure from the government on these centers that maintain blockchain and consume large amounts of energy, which end up ceasing their activities, says Naeem Aslam, director of analysis at Avatrade.

"In the long term, the exodus of Chinese miners will have a positive impact, but in the short term it may have caused or has already caused sales in‘ crypto ’", says Jonathan Cheesman of FTX.

In recent weeks, there have been many reports of crackdowns in China related to bitcoin mining operations in various provinces. The statistics of the last 30 days show that the 'hashrate' has fluctuated a lot, and in the last week it has dropped approximately 26%, according to data from bitcoin.com. Despite the drop, the world's top three mining hubs, accounting for about 41% of the current hashrate, are believed to be in China. Most bitcoin mines consume energy from coal, which has sparked concern about the possible environmental impact of the digital currency.

The reaction in the price to all of the above was immediate. The creation of Satoshi Nakamoto lost $30,000 on Tuesday and hit a six-month low only to later recover. The rest of the 'cryptos' have seen the decline that began after the less accommodative turn of the monetary policy of the US Federal Reserve continue. (Fed). The crash amounts to around 20% in the last seven days.

Still, bitcoin enthusiasts have taken to comparing the cryptocurrency with Google, the price of which continued to flourish after being banned in the People's Republic of China in 2010. Their argument is based on the fact that China undervalues ​​cryptocurrencies at its own risk and expense and that this will be positive in the long term for the United States.

"The cryptocurrency market is guided only, at this time, by the crackdown on mining and trade in China that began in May," wrote Michael Saylor, CEO of MicroStrategy in a note on Twitter. "This creates a hasty and forced exodus of Chinese capital and mining from the bitcoin network - a tragedy for China and a long-term benefit to the rest of the world," he says.

Anthony Scaramucci, for his part, has also opined, via Twitter, that the Chinese veto on bitcoin is "negative in the short term but positive in the long term."

INSTITUTIONAL INVESTORS CONTINUE STANDING BY THEIR BET

On the other hand, "investor confidence in cryptocurrencies is growing," says Aslam. This is supported by institutional investors, who are working to diversify their product portfolios in order to provide their clients with access to bitcoin.

Without going any further, on Friday it became known that Goldman Sachs has begun trading bitcoin futures through Galaxy Digital, the cryptocurrency investment company founded by Mike Novogratz, former Goldman partner, thus becoming the US bank's 'liquidity provider' in CME Group's bitcoin investments.

"Various surveys show that a growing number of hedge fund managers are willing to dedicate almost 10% of their portfolio to cryptocurrencies," rounds out the head of analytics at Avatrade.

Translated by Caoimhe Toman