China’s Bitcoin ban is affecting crypto stocks

A representation of the cryptocurrency Bitcoin

Written by Vishesh Raisinghani on The Motley Fool Canada

China stepped up its crackdown on the cryptocurrency sector this morning. Regulators have banned all digital asset transactions across the country, affecting cryptocurrency stocks and digital tokens across the board.

Please note the following for investors in this area.

What happened?

The People’s Bank of China, China’s central bank, stepped up its crackdown on the cryptocurrency sector this morning. In fact, regulators have rapidly curtailed the influence of the industry this year.

In early 2021, China banned Bitcoin mining, forcing local miners to either shut down their equipment or move it out of the country. A few months ago, regulators asked financial institutions and FinTech payment platforms to stop processing cryptocurrency transactions.

This morning they went one step further. The Volksbank has declared all cryptocurrency transactions illegal. This means that everything from Bitcoin to niche NFTs is now effectively banned. In a statement, regulators said these digital assets are used for “money laundering, illicit fundraising, fraud, pyramid schemes and other illegal and criminal activities”.

So what?

Over the past decade, China has played a pivotal role in the rise of Bitcoin and other cryptos. Chinese consumers have made the majority of transactions on most blockchain networks. Meanwhile, the country’s bitcoin mining sector quickly took 70% of the world market share.

This means that China’s raid will have a serious impact on the global Bitcoin economy. Unsurprisingly, Bitcoin’s market value is down 4% this morning and 10% last week. Most other cryptocurrencies are also sliding down.

The impact on crypto stocks is hard to ignore. Platform for digital assets Coin base lost around 4% in early morning trading. Canada’s own cryptocurrency stocks aren’t doing any better. Voyager Digital (TSX: VOYG) is down 3.1% this morning.

The story goes on

What now?

Investors are now waiting to see how deep the impact of this ban could be. It is worth noting that China has “banned Bitcoin” several times in the past. The country’s regulators have always been skeptical of digital assets and unregulated financial products. They think it’s a systemic risk.

However, demand from Chinese citizens and businesses has been strong enough to overcome these obstacles. However, this ban could prevent some Chinese companies from entering the market.

However, investors in Voyager Digital, Bitcoin, and other digital assets need to consider the bigger picture. Other countries have been far more receptive to digital assets and the crypto economy, and mainstream adoption is accelerating rapidly. El Salvador, for example, made bitcoin legal tender, while regulators in the US are actively considering exchange-traded bitcoin funds and crypto financial products.

Demand from the rest of the world could fill the void China is leaving.

Bottom line

China has tried several times to crack down on Bitcoin. This time the regulatory measures are stronger and more serious than ever. This could reduce the volume of transactions for companies like Voyager and others. However, growing demand in the rest of the world could fill the gap.

This could be a buy-the-dip opportunity for investors who are hungry for some regulatory risk.

The Post Warning: China’s Bitcoin Ban Affects Crypto Stocks first appeared on The Motley Fool Canada.

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Fool Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

2021

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