Cryptocurrencies – Regulation

0

Recent BAD News

Cryptocurrencies remain one the most volatile, yet attractive investments today. Still, a single move from the regulators can make the crypto markets look like a bloodbath, so many investors would think of them as risky investments.

 

Volatility

Investing in cryptocurrencies is not for the faint of heart, as these are one of the most volatile assets on the market today. Reaching all-time highs can be followed by impetuous crashes within just a few days.

One reason why traditional investors have shunned Bitcoin is that its price has swung from one extreme to another. Its price increased from around $1,000 at the beginning of the year to a peak of over $5,000 in September 2017 (gain of +400 percent), before crashing to a low of $2,981 (-40 percent from its peak) after China’s early September ban on initial coin offerings (ICOS) and later news on September 15 that Bitcoin exchanges were shutting down following directives from government officials sparked a market drop.

Even this represents an improvement from the initial days when Bitcoin price crashed from $32 to $2 in 2011 (a drop of 94 percent). There have been periods of low volatility, but these have been few and far between. Bitcoin may be called digital gold, but in terms of volatility, it looks more like stock markets on rollercoaster.

Regulation

It’s been a tumultuous couple of weeks in the Bitcoin community, as negative news spread throughout, driving prices lower. News of a China Exchange Ban, as well as negative rhetoric from the CEO of the world’s largest bank (JP Morgan Chase), knocked the legs out from under the Bitcoin price.

This time cryptocurrency prices were in the fall because of the new ruling from Chinese regulators, banning ICOs and asking for all related fundraising activity to be halted immediately. The directive made no mention of the major cryptocurrencies. But their prices tumbled immediately: Ethereum, widely considered the biggest beneficiary of the ICO boom, was down more than 12%, and Bitcoin was down 7% as China is the country where 42% of all Bitcoin transactions have accounted for this year.

However, a recent article in the Wall Street Journal indicates that the negative news still isn’t done. According to undisclosed sources, the Chinese government has officially decided to crack down on all Bitcoin and cryptocurrency trading, not just commercial exchanges. According to the WSJ: “A broader clampdown will likely include blocking mainland access to websites of foreign Bitcoin exchanges such as Coinbase in the US and Bitfinex in Hong Kong, say people familiar with the matter.”

With ICOs being banned, crypto exchanges being shut down, and rumors of putting up the “Great Firewall” against foreign exchanges, markets have been getting hit with their fair share of negative news coming out of China.  However, after dropping almost 30 percent from the all-time high, it seems as if markets have begun to accept negative crypto stories from China as the norm.

Chinese regulation comes as one of the strongest regulatory challenges so far to the burgeoning market for digital token sales, but not the first one to crash the market. In the beginning of August, SEC had officially confirmed it was looking into regulation of cryptocurrency ICOs and warned that ICOs may be considered securities. Singapore quickly followed suit.

It’s obvious that regulators are trying to prevent investors from losing their money to scam projects. But can they stop the development of the newborn crypto economy?

Now for the rumor. The Internet has been swirling with tales of people who know other people (and so on) who said that China is going to ban Bitcoin mining. This has definitely contributed to some fear in the marketplace. While China’s exchanges represent only about a fifth of the Bitcoin traded globally (down from over 90% a year ago), the vast majority of Bitcoin mining does in fact take place in China.

A government crackdown on exchanges is bad, but not catastrophic. On the other hand, should China’s government order the shutdown (or worse, nationalization) of Bitcoin miners, it would deal the network a solid blow.

Although Bitcoin has suffered from recent negative news from countries like China such as banning of ICOs and planning to shut down the Bitcoin exchanges by the end of the month, Tom Lee, Head Research of Fundstrat Global Advisors and Former Managing Director of JP Morgan Chase thinks there are still advantages to the situation such as liquidity effect and perspective of the people.