Why the crypto China narrative is not bullish for Bitcoin and Ethereum prices

  • Bitcoin price is struggling to break past the $25,000 level, while market participants expect the “China narrative” to act as a bullish catalyst.
  • Hong Kong’s latest stance on cryptocurrency legalization and trade does not include retail participation, this could dampen the sentiment among traders.
  • BTC and ETH prices struggle to recover, awaiting a catalyst, while Chinese coins, and exchange tokens rally. 

Bitcoin and Ethereum prices have nosedived since February 21 but experts believe the "crypto China narrative," emerging from Hong Kong's liberal attitude towards cryptocurrency businesses and trading, could come to the rescue. 

One flaw in the bullish thesis, however, is that doors remain closed for retail traders in Hong Kong, whilst access already exists for institutional investors  through large exchanges like OKX, Binance and their Over-The-Counter (OTC) desks. 

With the short-term recovery uptrend still intact from a technical perspective, however, the two largest cryptocurrencies by market capitalization must await an alternative bullish catalyst to continue their recovery. 

Also read: Here's why Chinese coins Filecoin, NEO, Conflux, VeChain are yielding massive gains

How bullish is Hong Kong’s crypto China narrative with retail investors out of the equation?

On February 20, 2023, Hong Kong’s Securities and Futures Commission (SFC) started a consultation process for licensing cryptocurrency exchanges to serve retail investors, however, this is likely to be a long process. 

The SFC has already spent several years working on a consultation plan for professional investors, therefore doors will be opened to institutions and not retail in June 2023. 

Regulators are working on a list of “approved tokens” and “risk profiling.” This implies even after doors are opened for institutional crypto traders and cryptocurrency service providers, Hong Kong will most likely be a walled garden of virtual assets. 

With retail participation out of the equation, it remains to be seen how a rollout of crypto services in Hong Kong will be bullish for assets in the short-term. 

Retail traders in Hong Kong have accessed crypto assets on unlicensed exchanges and an access to licensed platforms would mark a big step up in efforts to attract crypto businesses to the Special Administrative Region. 

Singapore made strides and allowed retail participation in crypto, however the market was rife with several high-profile crypto controversies, including last year’s collapse of the US Dollar-pegged algorithmic stablecoin TerraUSD. 

Here’s why it's tough to be bullish on the “new-old” China narrative

The "crypto China narrative" is not new; it gained popularity with Hong Kong's changing stance on crypto and the initiation of a new licensing framework for digital assets in December 2022. 

The narrative has fueled a bullish sentiment among traders on "China coins" like Conflux (CFX), NEO, and Filecoin (FIL) yielded double-digit gains over the past week. Most of the tokens that rallied previously have witnessed a steep correction. 

Interestingly, according to Gareth Soloway, the Chief Market Strategist at Verified Investing, the China narrative continues to attract new investors to Bitcoin. 

While this may appear bullish in the short-term in terms of BTC adoption among traders, China’s series of “crypto bans” have negatively influenced the asset over the past decade. 

China’s 2021 crypto ban was the most severe one in its history, it didn’t come as a shock. Many long-time crypto traders had lost count of how many times China "banned Bitcoin." 

2013: BTC adoption grows, China imposes first ban on crypto

Although Bitcoin was available in 2009, it wasn't until 2011 that BTC gained popularity in China. BTC became so widespread in China that many businesses began accepting it as payment and Baidu, China’s largest search engine, announced it welcomed BTC payments. 

The People's Bank of China (PBC) issued new rules regarding crypto transactions at financial institutions, according to which Chinese banks could no longer hold or transact in virtual currencies like BTC. 

This was the first BTC ban and it didn’t make it illegal for retail traders to hold or trade crypto. 

2017: China outlawed Initial Coin Offerings

During the 2017 crypto bull market, Chinese officials increased sanctions on crypto trading. However, instead of a ban on BTC mining, or trading, China banned ICOs.

Following the release of smart contract blockchains like Ethereum (ETH) and the increased speculation during the 2017 bull market, ICO trading increased dramatically. 

To put a stop to the ICO craze, China banned all platforms offering ICOs. 

2021: China bans BTC mining (2019, took effect in 2021)

China considered banning Bitcoin mining in 2019, but in 2021 officials imposed severe restrictions on this sector. 

Bitcoin price nosedived from $55,000 to $30,000 in the ensuing months of the ban, and miners shut operations or moved to the west. 

In 2021, it became illegal for residents to send crypto and for businesses and banks to accept coins like Bitcoin and Ethereum.

BTC price after China's crypto crackdown

BTC price after China’s crypto crackdown

China, under President Xi Jinping banned cryptocurrencies and moved forward with the “Blockchain, not Bitcoin” motto in 2021. 

Using China's crypto boom as catalyst is a long way off

Crypto is widely available in China, and there is no shortage of virtual assets when it comes to domestic payments. 

Big crypto exchanges like OKX and Binance offer active OTC crypto markets for USDT, Ether, Bitcoin and other major cryptos. Payment is made via services like WeChat or a domestic bank transfer. Market participants who want in on crypto already have it in China. At the same time, Hong Kong's plan to open crypto for retail is a long way off. It is unlikely that the China narrative rebranded as a new phenomenon will catalyze BTC and ETH prices. 

Another crackdown from Beijing could nail the coffin shut with a blanket ban on all “OTC” services, pulling access for retail traders in China. 

It is therefore unlikely that the “crypto China narrative”, or Hong Kong’s moves to legalize crypto and allow trading for institutional investors, will usher in the next BTC bull run. 

It is possible, however, that other bullish catalysts may emerge for Bitcoin and Ethereum which remain in an ongoing short-term technical uptrend, tipped to continue higher.

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