Johannesburg, 19 Oct 2021
What's going on in the major crypto markets as 2021 comes to an end? Plenty, beginning with what might be one of the most draconian moves by a position of power against its own citizens. In September, the centrally planned government of China's CCP (Chinese Communist Party) banned citizens (but not other party members) from owning, trading, storing or mining Bitcoin and all other crypto-currencies.
The reason behind the move is unknown. But for people who live and work in free nations, what are the implications of the CCP's freedom-stifling decision? For anyone interested in owning, speculating on, trading or mining cryptos, the sheer size of China's economy meant the hard ruling had several unexpected consequences, almost all of which are favourable for everyone but the national government, which decided to eliminate crypto-currency from its home economy.
China's backward move
For starters, once the ban was announced, two of the largest alt coins, based on capitalisation, dropped temporarily. That's mainly because so many Chinese citizens were forced to sell their Bitcoin and Ethereum. But not long after that, several interesting things happened. Crypto entrepreneurs in Texas decided to pounce and offer to take up the slack for crypto-based companies and mining operations. Bargain hunters jumped in and bought up massive amounts of both Bitcoin and Ethereum just before prices began to rise again.
Non-centralised tokens, known as DEX units (meaning decentralised), popped as soon as the ban was announced. Here's more about the short-term and long-term effects of the CCP decision to ban all crypto activity within Communist China's borders. Note that in Democratic China, Taiwan, all crypto-currency trading, owning and mining is still fully legal. The ban only applies to the Communist-run mainland.
Opportunities for the rest of the world
Whenever a large governmental entity bans a product or service, there's usually a ripple effect. And, in the recent case of the crypto ban by the CCP, that rule has certainly held true. For instance, crypto-currency trading platforms in South Africa, Europe, the US and non-communist Asia all saw frenetic activity during the last weeks of September. Why? As noted above, the primary effect was bargain seekers who wanted to pick up as much Bitcoin and Ethereum as they could afford before the temporary price drop reversed itself. And their predictions were correct, as the two major alt coins soon regained all their lost ground and then some.
For example, Bitcoin temporarily dropped, but within two weeks was back up to $47,600 and threatening to reach back to highs set during the early part of the year. Ethereum did almost exactly the same thing. That's not to say that investors and traders can only make a profit on increases in value. But with the crypto-currency market so volatile these days, long-term investors are always on the lookout for price dips that allow for quick bargains. It appears that millions of alt coin enthusiasts jumped in at just the right time and made a handsome profit.
Risks for crypto enthusiasts
With every opportunity come risks, and the crypto sector is no exception. Of course, both ETH and BTC could fall at any time, especially in an asset class as new and unpredictable as crypto-currency. Navigating the uncertain terrain of virtual monetary assets is not for the faint of heart, nor is it an investment without risk. A short list of the financial risks associated with buying any alt coin include the following:
- Price volatility, especially for the smaller, newer coins;
- Some trading platforms are not as secure as they should be;
- Holding assets in online wallets exposes investors to risk of confiscation or hacking; and
- Alt coins are unregulated by official institutions, which means there's no safety net for holders should a currency drop to zero.
Stocks and other traditional assets also have the potential to reach zero value levels, experience price surges in every direction and leave owners with little to show for their once valuable portfolios.
The DEX effect
Decentralised coins (like pancake and hundreds of others) don't require the use of an official, third-party exchange for buyers who want to acquire them. In China's case, that could mean that clever citizens can easily work around the new law and purchase DEX coins with their leftover investment funds. And apparently, that's what everyone expects them to do because several of the top ranked DEX cryptos rose by huge amounts as soon as the ban became official. A few leaders of the DEX sector rose by an astounding 40%. Will the CCP figure out a way to stop it's billion-plus citizenry from going directly to online sources and purchasing DEX currencies? Based on the party's history, it's a good bet they'll try, which means there will be a new round of opportunities in the virtual currency markets when that happens.
The Texas effect
As soon as the CCP revealed its new policy, the US state of Texas announced that the city of Austin would welcome any mining operations that wanted to move their headquarters from the Chinese mainland to the Lone Star State. It's uncertain how many of the now-illegal coin miners in Shanghai, Beijing and Hong Kong will be heading to Texas, but the development is an excellent example of how banning an activity in one place simply allows it to move to friendlier territory.
Other considerations
Bans aside, two of the more relevant forces driving the entire global crypto-currency markets these days are economic instability and the continuing COVID-19 pandemic. In some ways, the second is responsible for the first because so many small businesses went under after more than a year of social lockdown rules and forced retail closures. Whether investors continue to view Bitcoin, Ethereum and other players in the crypto-currency space as safe-haven assets in times of economic uncertainty is to be seen. So far, the alt coins have held up admirably since the first days of the COVID-19 pandemic.
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