A news report from Reuters seems to have caused the Wednesday cryptocurrency market selloff. Reuters reported that China had once again banned digital assets, causing a market panic that saw Bitcoin dragging the rest of the crypto market into the red. Apparently, it was all a big misunderstanding.
With Elon Musk’s Bitcoin naysaying, putting a damper on an – environmentally conscious – public’s sentiment toward the entire digital currency market, The People’s Bank of China (PBoC,) on Wednesday, put a spanner in the works of it all by “banning crypto“, as Reuters reported. The edict put digital asset markets into a tailspin, sending the largest crypto asset – by market capitalization – into a price drop that saw it fall below the $35,000 mark.
Though the article caused panic across all digital asset markets, leading to a massive all-round price dump, it turns out that the PBoC – along with three other government entities – was not banning digital assets outright. Infact, the 3 Chinese government entities were merely reiterating a 2013 ruling, which disallowed Chinese national financial institutions, and payment services from facilitating, or performing digital asset based transactions.
“Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,”Excerpt from joint statement from the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.
The three organisations, it appears, reiterated the statement in light of the current cryptocurrency bull run. Digital asset trading activity has allegedly picked up in the Asian nation, with go-to exchanges, OKEx, Huobi, and Binance experiencing a surge in OTC (Over-The-Counter,) and Peer-to-Peer (P2P) trading.
Though China does not recognize cryptocurrencies as legal tender, the nation does protect them as a digital commodity, allowing its citizens to hold, and trade in digital assets. The disconnect lies in that, although taking a friendly stance towards crypto legally, China’s regulatory regime around the asset class puts a stronghold on free crypto market activity within the nation’s borders.
Does The Chinese Market Really matter?
Well, in 2017, China was responsible for 90% of all cryptocurrency trading volumes, those numbers have since dropped off. Chainalysis in 2020, did a study on East Asia’s dominance over digital assets markets. They find that The East Asian Block (China, Korea, and Japan, still have a strong hold – and therefore, influence – over digital asset markets. Which explains why news out of China still has such a big effect on market movements.