China’s Ban on Crypto Isn’t Hurting Bitcoin. Here’s Why.
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China’s Ban on Crypto Isn’t Hurting Bitcoin. Here’s Why.

The world’s most infamous crypto is taking the crackdown in stride.

By Daren Fonda
Tue, Sep 28, 2021 11:38amGrey Clock 3 min

China’s latest moves to ban cryptocurrency transactions are causing exchanges to shut down in the country, but Bitcoin and its counterparts appear to be taking the crackdown in stride.

Prices for Bitcoin and Ethereum, the two largest cryptos, have risen more than 7% and 15%, respectively, from their low points on Friday, when China’s new ban was published, according to Fundstrat Global Advisors.

Bitcoin was trading around $43,600 Monday morning, down slightly from before China’s announcement. Ethereum, at around $3,090, has also recouped losses since Friday’s sell-off took the coin down to $2,750.

Other cryptos fared even better over the weekend—notably the tokens used to process trades on decentralized exchanges, known as DEXes. Uniswap, Sushiswap, and dYdx, the tokens associated with those three venues, have surged more than 30% since Friday as activity on those platforms took off.

Trading on the dYdX DEX topped that on Coinbase Global (ticker: COIN) over the weekend, according to Fundstat, pushing the token’s price up 80%.

DEXes allow users to swap tokens with far more privacy and anonymity than a standard brokerage. Users may be able to set up accounts without providing their names or addresses, simply by registering a digital wallet that is associated with an IP address and security keys. Trading occurs automatically using software code and “smart contracts” between buyers and sellers, or lenders and borrowers.

China appears intent on shutting down commercial crypto transactions and trading in the country. The People’s Bank of China and other regulatory agencies warned citizens of stiff penalties if they were caught trading cryptos or related products.

One of the largest exchanges in China, Huobi Global, has stopped opening accounts for new customers in mainland China, effective this past Friday. It said on Sunday that it would “gradually retire” existing accounts by the end of the year.

Binance, another major exchange, has also suspended new accounts in China. It said Monday that users in Singapore wouldn’t be able to access its site for deposits or trading of cryptos, starting Oct 26., and that users in the country were advised to “cease all related trades, withdraw fiat assets and redeem tokens by Wednesday.”

Singapore’s central bank warned in early September that Binance may be violating payment regulations in the country.

Yet the crypto markets aren’t tanking, even as China and other countries in Asia move to restrict commercial transactions.

One explanation is that traders can migrate to DEXes where it may be harder for regulators to track transactions. Uniswap and other exchanges could be beneficiaries if trading volume moves to their platforms long-term.

As Fundstrat noted, moreover, much of the Bitcoin that has been mined, or produced, doesn’t circulate, and more of it may be kept offline. About 70% of all circulating Bitcoins is now held by long-term holders, up from 59% in May. “This indicates that ‘whales’ have continued buying into recent volatility,” Fundstrat said.

China has periodically tried to restrict crypto activity and Bitcoin has shrugged it off. Not including the latest crackdown, China has announced tough new measures on crypto six times since 2013. Bitcoin fell an average 4% in the week after the announcements but was up an average 46% a year later.

“The lesson here is that if you invest in crypto long enough, you start to develop a circadian-like rhythm in which you find yourself unsurprised by panic-selling initiated by seemingly routine ‘FUD’ released by the Chinese government,” Fundstrat wrote, referring to fear, uncertainty, and doubt.

Nonetheless, trading on DEX platforms isn’t as easy as it is on the major sites. It takes more technical skill than simply opening an account with a brokerage service and funding it through a bank account. Active crypto traders may not be deterred, but the casual investor may find it too cumbersome–and hardly worth the potential penalties in an authoritarian country like China.

The message from crypto markets now is that they don’t need China or its vast market of investors. Whether that lasts remains to be seen, especially if other countries follow in China’s path.

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Boost for World Economy as U.S., Eurozone Accelerate in Tandem

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Global economic growth is becoming more broad based, with surveys indicating that business activity in both the U.S. and the eurozone gained momentum in May.

The eurozone economy contracted in the second half of 2023 following a surge in energy and food prices triggered by Russia’s invasion of Ukraine, and the subsequent rise in interest rates intended to tame that inflation.

By contrast, the U.S. economy expanded strongly over the same period, opening up an unusually wide growth gap with the eurozone. That gap narrowed as the eurozone returned to growth in the first three months of the year, while the U.S. slowed.

However, surveys released Thursday point to a fresh acceleration in the U.S., even as growth in the eurozone strengthened. That bodes well for a global economy that relied heavily on the U.S. for its dynamism in 2023.

The S&P Global Flash U.S. Composite PMI —which gauges activity in the manufacturing and services sectors—rose to 54.4 in May from 51.3 in April, marking a 25-month high and the first time since the beginning of the year that the index hasn’t slowed. A level over 50 indicates expansion in private-sector activity.

“The data put the U.S. economy back on course for another solid gross domestic product gain in the second quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Eurozone business activity in turn increased for the third straight month in May, and at the fastest pace in a year, the surveys suggest. The currency area’s joint composite PMI rose to 52.3 from 51.7.

The uptick was led by powerhouse economy Germany, where continued strength in services and improvement in industry drove activity to its highest level in a year. That helped the manufacturing sector in the bloc as a whole grow closer to recovery, reaching a 15-month peak.

By contrast, surveys of purchasing managers pointed to a slowdown in the U.K. economy following a stronger-than-expected start to the year that saw it outpace the U.S. The survey was released a day after Prime Minister Rishi Sunak called a surprise election for early July, banking on signs of an improved economic outlook to turn around a large deficit in the opinion polls.

Similar surveys pointed to a further acceleration in India’s rapidly-expanding economy, and to a rebound in Japan, where the economy contracted in the first three months of the year. In Australia, the surveys pointed to a slight slowdown in growth during May.

Businesses reported that they were raising their prices at the slowest pace since November, which should reassure the European Central Bank. However, the eurozone continued to add jobs in May, suggesting that wages might not cool as rapidly as the ECB had hoped.

The ECB released figures Thursday that showed wages negotiated by labor unions in the eurozone were 4.7% higher in the first quarter than a year earlier, a faster increase than the 4.5% recorded in the final three months of 2023

The ECB has signalled it will lower its key interest rate in early June, while the Fed is waiting for evidence that a slowdown in inflation will resume after setbacks this year.

Nevertheless, eurozone businesses and households shouldn’t bank on successive cuts to borrowing costs, ECB Vice President Luis de Guindos said. “There is a huge degree of uncertainty,” he said. “We have made no decisions on the number of interest rate cuts or on their size,” he said in an interview published Thursday. “We will see how economic data evolve.”

Continued resilience in the eurozone economy would likely make the ECB more cautious about lowering borrowing costs after its first move, economist Franziska Palmas at Capital Economics wrote in a note. “If the economy continues to hold up well, cuts further ahead may be slower than we had anticipated,” she said.

– Edward Frankl contributed to this story.

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