October 1, 2022

China will be the main catalyst for the growth of the cryptocurrency market

China will be the main catalyst for the growth of the cryptocurrency market

The pages of news sites are full of statements about the green light for the cryptocurrency market in China, the new "to the moon ”on Asian traction and Xi Jinping's“ revolutionary ”speech.

Are the gates of the Middle Kingdom now open for bitcoin and what could result in a change in the regulation vector for cryptocurrencies and the entire industry?

Chinese crypto-week

Over the past week in the Middle Kingdom there has been a wholea series of events that alarmed the cryptocommunity is no less than a ban on ICOs and the dispersal of Chinese exchanges in 2017. If until this moment you did not have the desire or time to study the news feed, then this is what happened:

  • October 25, Xi Jinping (Chairman of the PRC)formally addressed the Politburo Committee, among other things noting that blockchain could provide an economic breakthrough in the country. The head of China called for identifying priority areas for the application of technology and allocating resources for necessary research.
  • October 26, the government of China accepts"The Law on Cryptography." The document is noteworthy in that it regulates not the economic, but the technical component of tokens and cryptocurrencies. In particular, it establishes standards for hashing and management of access keys. It is interesting that the Law "hung" at the All-China Assembly in May, and the fact that it was adopted the day after Jinping's speech was pure coincidence.
  • October 28, Lu Lei - Deputy HeadThe State Administration for Foreign Currencies of the PRC made a statement that China intends to use blockchain to create a single channel of foreign investment and apply this technology in international settlements.
  • October 30, the Central Bank issued certification standardshardware and software. Among other things, it mentions the Trusted Execution Environment technology used to create blockchains. The presence of standards allows the regulator to verify the development of digital products (including those based on the blockchain), at least in the financial industry. Developers must obtain a Certification of Fintech Product license and renew it every three years for legal activity.

In addition, on October 30, Guangzhou authorities approvedcreating a 1 billion yuan blockchain fund to support companies developing public and federal blockchains. Similar projects already exist in Shanghai and Beijing, major Chinese metropolitan areas.

The most interesting thing is that in the developments supported by the fund, companies should not use cryptocurrencies.

Against this background, it is worth recalling the statementsThe Central Bank on the completion of work on the national cryptocurrency - the so-called "Crypto-yuan", which, according to experts, should appear in the near future. Apparently, the development of the currency is coming to an end, and the regulator approved the legal basis for its development.

This also explains the ban on use.cryptocurrencies in local projects and an unchanged position in relation to bitcoin (a ban on trading and ICO is still in effect). The place of these decentralized assets should be taken by the crypto-yuan national controlled two-tier payment system.

Hold the bulls

The reaction to Xi Jinping's speech was stormy and almost instantaneous. On the day of the speech, the number of mentions of the blockchain in WeChat grew by 329%, and the number of similar requests in Baidu increased by 1,382%.

Traders and investors also apparently decidedthat the call to work on blockchain projects predicts a green light for cryptocurrencies in China in the near future. At first, bitcoin, and then a number of altcoins, showed growth.

True, only coins grew among altos, soor otherwise associated with Chinese companies - NEO, TRON, Qtum, Ontology and several others. The first cryptocurrency, it generally demonstrated a rally of the scale of December 17th - for a day it grew by $ 2000:

China will be the main catalyst for the growth of the cryptocurrency market

Having noticed such an active response from the market, the authoritiesCelestial people decided to hint to traders that a new "crypto-paradise" should not be expected. The local publication People’s Daily published a publication stating that government support for blockchain does not mean support for cryptocurrencies.

“The growth of the blockchain was accompanied by the development of cryptocurrencies, but technological innovations do not mean that we should speculate on virtual currencies,” the article says, among other things.

And all would be fine, you never know what the journalists write,only the People’s Daily is controlled by the Chinese Socialist Party, so the article can be considered an indirect, but warning that no one is going to let Bitcoin and other currencies into the already settled Celestial Empire.

In addition, the country has enough of its innovators. On October 27, the China Information Technology Development Center published a report according to which 700 companies work in the Middle Kingdom, including 83 research organizations. Over the past year alone, these enterprises have presented 151 solutions using blockchain in 28 industries, including logistics, healthcare and the financial sector.

New legislative framework does not open China tointernational projects or cryptocurrencies, it is more likely to activate, simplify (and put under government control) the activities of Chinese companies.

Implications for Bitcoin and the industry

Although China disapproves of volatileand unregulated bitcoin in their country, nobody forbids to mine it. Moreover, cheap electricity from Sichuan hydropower plants creates favorable conditions for the placement of mining farms in this region.

So, on October 28, the local cell of the Socialist Party of Chinaheld a meeting on the further development of the province, where it was noted that 70% of bitcoins are mined in Sichuan. If we add to this the Coinshare study, according to which more than half of the network’s mining capacities are located in the region, then a disappointing conclusion suggests itself - the first cryptocurrency only formally remains decentralized. And if the Sichuan authorities continue to develop mining-loyal policies, then this trend will only intensify.

Yes, mining is a technical process and with its helpit’s difficult to control the spread of bitcoin, but if China feels a threat to “crypto-yuan” in bitcoin, then it will be enough to issue one decree so that the giant farms repeat the fate of the 2017 exchanges. The network in this case normalizes the processing of transactions by recalculating the complexity of the hashrate, but this will take about two weeks. If during this time the BTC holders start to panic and “discard” their coins, then the bitcoin exchange rate can significantly subside.

So far, the United States and the EU have put togetherthreatened by the launch of Libra, China begins to fully exploit the potential of the blockchain, creates its own global payment network and simultaneously thinks out a plan to eliminate its main competitors - decentralized cryptocurrencies. And it is still unknown what threatens the dollar more, the idea of ​​Zuckerberg or the speech of Xi Jinping.