Rationality Returns As Traders Try to Figure Out Where China Stands on Crypto

Siamak Masnavi

The euphoria following President Xi Jinping's highly enthusiastic blockchain speech on October 24 helped the price of Bitcoin to go up over 27% in under 48 hours. However, recent events in China suggest that traders need to be cautious and that the government's pro-blockchain stance does not mean carte blanche for all crypto companies.

The Chinese President's Blockchain Speech

According to a report by China's Xinhua News Agency (the official state-run press agency of the People's Republic of China), which was published around 10:15 UTC on Friday (October 25), the Political Bureau of the Central Committee of the Communist Party of China (CPC) completed the "18th collective study" on blockchain technology on the afternoon of October 24.

China's President Xi Jinping, who is also the general secretary of the Central Committee of the CPC, gave a speech that "emphasized that the integrated application of blockchain technology plays an important role in new technological innovation and industrial transformation." 

Per the Xinhua News Agency's report:

"He pointed out that the application of blockchain technology has extended to digital finance, Internet of Things, intelligent manufacturing, supply chain management, digital asset trading and other fields. At present, major countries in the world are accelerating the development of blockchain technology. China has a good foundation in the field of blockchain. It is necessary to accelerate the development of blockchain technology and industrial innovation, and actively promote the development of blockchain and economic and social integration."

Although President Xi's remarks were specifically about blockchain technology and not decentralized cryptocurrencies such as Bitcoin, the following day, after reports about the speech were released to Chinese media (and thereafter, widely covered elsewhere), some crypto traders around the world took this as a signal that the Chinese government was fully behind blockchain and crypto. This helped the price of Bitcoin rise over 27% (from $7500 to $9500) in less than 48 hours after the first reports on the speech surfaced.

Events of November 15

November 15 is a significant day for our understanding of China's attitude towards cryptocurrency because of two events that occurred in China that day. As CryptoGlobe reported back then, this was the day on which the Weibo accounts of both Binance and TRON got blocked. This news was probably at least partially responsible for the Bitcoin price falling below $8,500 for the first time in three weeks.

According to a report by Coindesk published later that day, the Shanghai Internet Finance Rectification Agency and the Shanghai Bureau of the People’s Bank of China posted a notice on Weibo that said "regulators in each district of Shanghai must search and inspect local crypto exchange-related services before Nov. 22 and report to the central bank for further actions."

November 18th's 'Blockchain Is Not an ATM' Report on Chinese TV

On Monday (November 18), China Central Television (CCTV), the main state television broadcaster in mainland China, aired an episode (titled 'Blockchain Is Not an ATM') of Focus Report (an important news program that is kind of similar to "60 Minutes" in the U.S.) that focused on blockchain technology and cryptocurrencies. 

According to CCTV's episode transcript, although blockchain technology has "great value in the fields of trade finance, public services, and traceability of agricultural products," the "blockchain boom" has also caused some "chaos in the society."

Wu Zhen, the Head of the Key Laboratory of Internet Financial Security Technology of the National Internet Emergency Center, had this to say:

"At present, we have detected the blockchain company with the word "blockchain" or its business scope. There are more than 32,000 blockchains, and the number is still relatively large. However, after actual monitoring, we found that there are actually not many companies that have blockchain technology or chain ownership. This is probably the same amount. About 10%, or even less than 10%." 

This episode focused mostly on the various blockchain/crypto scam operations that have been going on in China. However, importantly, it also reminded people that on 4 September 2017, "the People's Bank of China and other seven ministries issued an announcement clearly stating that the so-called 'virtual currency' is essentially an unauthorised illegal public financing, suspected of illegally selling tokens and illegally issuing securities."

What Is the Chinese Government's Stance on Crypto?

Yesterday's aforementioned episode of the Focus Report tells some market analysts/commentators that the Chinese government's stance is clearly "blockchain, not crypto".

Here is what Dovey Wan, a Founding Partner of blockchain-focused venture investment firm Primitive Ventures, said on Twitter yesterday:

However, not everyone is so sure. For example, Celia Wan (@celiawan2), a financial news reporter for The Block, pointed out on Twitter that "the CCTV1 TV program talks about frauds UNDER THE PRETENCE of blockchain/cryptocurrencies but not cryptocurrencies per se." In other words, it could be that what the Chinese government is really trying to say is not so much "blockchain, not crypto", but rather "blockchain and maybe crypto, but be careful not to get scammed". 

The Effect of This Doubt About China's Crypto Stance on the Bitcoin Price

Although the relatively illiquid nature of the Bitcoin markets make it hard to be certain about what events (if any) led to a particular prise rise/fall, the events of November 15 and November 18 seem to have dampened some of the irrational exuberance following President Xi's speech, and this could be why the Bitcoin dropped on November 18 from $8,473 at 11:00 UTC to an intraday low of $8,144 by 18:30 UTC.

According to CryptoCompare, at the time of writing (10:41 UTC on November 19), Bitcoin is trading at $8,134, down 4.17% in the past 24-hour period:

BTC-USD 24 Hour Chart - 19 Nov 2019.png

 

Featured Image Credit: Photo via Pixabay.com