In the wake of news that a senior Chinese central banker has called for a ban of cryptocurrency trading and related services, crypto markets took a hit, with leading digital currencies dropping as much as 50% over the past 48 hours. This follows news that Chinese authorities plan to reduce the scale of bitcoin mining in the country and its crackdown on ICOs in September 2017.
Xiahong Lin is the CEO of Bodhi, a decentralized predictions market platform focused on Chinese markets. His thoughts are below
Rumor of forthcoming regulation from the Chinese government caused crypto markets to take a downturn this week. Compared to other countries, China’s cryptocurrency market is overheated and therefore, wields substantial influence over the global market. In a market that is highly driven by speculation, there are two primary factors that make China’s influence unique.
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China has the largest population in the world, which naturally translates into a larger market for technological innovation. Over the past decade, China has been the world’s largest emerging market economy, both in terms of population and total economic product.
This has been partially due to its willingness to adopt digital innovation. China is arguably the world’s most important manufacturer and industrial producer, and those two sectors alone account for more than 40% of its GDP.
China is also the world’s largest exporter and the second-largest importer, and it contains the fastest-growing consumer market, with telecommunications as one of its major industries. Due to the nascent nature of crypto markets, China’s large population and active participation in the sphere can significantly affect prices and speculation through sentiment.
Through the mass popularity of social network platforms such as WeChat and Weibo in China, news and rumors in the cryptocurrency market are able to travel quickly and to a very large number of people. Through my own involvement in the cryptocurrency space in China, I’ve found it’s incredibly easy to be invited to join more than 100 crypto-related chat groups in a relatively short period of time.
The topics discussed in these groups typically include blockchain hype, token speculation, and ICO deals, many of which are spread to the entire network in mere hours. For example, there are several recently-announced projects that have become “hot” within days without a detailed strategy, existing whitepaper, or experienced team.
These large connected social media groups in China exaggerate the spread of both FUD (fear, uncertainty, and doubt) and FOMO (fear of missing out), which in turn make the market very sensitive and fragile, especially in response to potential government regulation.
Much of the recent price slide in bitcoin and altcoins is due to inexperienced market participants selling their holdings in panic. The downturn in the crypto market, however, will prove to be temporary.
The capabilities of blockchain technology to solve critical problems across various industries are very much in their early stages, and their full potential has yet to be tapped.