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Governments can’t stop cryptocurrencies, but they can make them a lot harder to access. So it would make sense that unfriendly government policies in the world’s largest economies would play a role in lowering the price of Bitcoin.
As an example of how Bitcoin temporarily slumped by up to 30% in the few days after China repeated its crypto crackdown in May. The decline was another reminder that the market is listening when China speaks.
The US, it seems, isn’t so much.
This month, a highly controversial $ 1 trillion crypto tax provision in the Infrastructure Bill was passed by the Senate, despite eager attempts to change it. Crypto advocates claimed that the provision would make it impossible for miners, software developers, and other crypto-related actors to comply with U.S. tax rules and threatened to drive much of the industry overseas. This seems like a pretty bearish sign.
But it wasn’t, at least in the short term.
In the days after the bill was passed, Bitcoin soared up to 7%. In fact, shortly after the Washington drama, the entire crypto market hit $ 2 trillion in market cap, a level not seen since May.
Related: Bitcoin cracks $ 48,000 for the first time since May
This week the determination will be moved to the house where the language may or may not change. It remains to be seen whether the market will react to what is happening in Washington.
Why did Bitcoin seem to react so differently to the US compared to China? As with anything to do with Bitcoin price, it’s impossible to say for sure, and there are many other factors that affect prices. But here are some of the more plausible theories.
The story goes on
China’s measures look final, but the US is just getting started.
China has long been pro-blockchain and suspicious of crypto, and this is nowhere near the first time Beijing has cracked down on the industry. But China’s government seems to be taking it seriously this time around, at least when it comes to stopping cryptocurrency mining. Chinese miners seem to understand that protesting against this policy is unlikely to change anything, and so they are already looking for their fortune outside the country.
However, the Senate’s passage of US law is just the beginning. Now lobbying will focus on the House of Representatives, where the bill will be discussed next week. And if the language is not changed there, the crypto industry will not give up. Even if the law is passed as written, there is a chance the Treasury Department may favorably narrow the broad definition of the term “broker”.
What happened in China is “a complete blow,” said Michael Wu, CEO of Amber Group, a crypto trading firm in Hong Kong. “The USA is seen by many as a gateway to dialogue and discussion.”
Bobby Ong, co-founder and chief operating officer of data provider CoinGecko, shared this opinion.
“The key is that it’s not the final law yet so the market isn’t pricing that in,” he said. “People believe that in the end, reason will prevail and things will be better worded.”
What happened in Washington is actually good for crypto
There are a few possible silver linings to the drama of the crypto tax regime. The first is that crypto has finally reached its mainstream moment. It played some part in holding $ 1 trillion out of $ 1 trillion. It forced US lawmakers to at least acknowledge its existence and relevance. We have also seen the crypto community, known to be decentralized and often divided, become a real political force. Lawyers didn’t get their way this time, but they definitely got people to watch out.
“The moral victory is won,” wrote CoinDesk Chief Content Officer Michael Casey. “The once marginalized crypto community will be legitimized, which will ultimately lead to a constructive political environment for the industry.”
It’s not China or the US, it’s just the market timing
Or maybe bitcoin is just bitcoin, and these price movements have little to do with China or US politics
The crackdown in China followed a simmering market, but by that point prices were already beginning to decline. The CoinDesk Bitcoin Price Index (XBX) was trading at over $ 42,000 in late May, shortly after hitting its all-time high of over $ 64,000.
“It has more to do with market participants than with the news itself,” says Qiao Wang, partner at Defi Alliance, an accelerator for startups. The news from both countries was equally bad, “but when the China news came it was very frothy. When the US news came, most of them had sold weak hands. ”
“Market timing is also a key factor,” said Jason Lau, chief operating officer of the Okcoin crypto exchange. “The China News came about when the markets were already overwhelmed, declining and looking for more negative news.” In the case of the US Infrastructure Act, however, “where Bitcoin was recovering, the market was actively looking for positive news – that’s why you saw the positive phrase of ‘it’s amazing how the industry could come together and make a difference, united voice.’ ”
The US is not the center of the crypto universe
That may be my favorite theory. The basic idea is that the market has recognized that this supposedly catastrophic crypto deployment could become a reality, but in the end it didn’t matter much.
Because even in the worst case, in which a large part of the digital asset industry had to leave the USA, the crypto market would continue to exist.
It is worth repeating: we do not yet know how the market will react to everything that happens in Congress this week. But there is still reason to believe that the US is not the center of the crypto universe.
There is of course no question that the US is a major force in the crypto space, especially when it comes to institutional investing, but crypto is becoming more and more global. Asia has long been a critical actor and we are likely to hear more and more about Africa and Latin America. While it is notoriously difficult to accurately track crypto usage geographically, Chainalysis’ crypto adoption index ranked the United States 8th in 2021, after Vietnam, India, Pakistan, Ukraine, Kenya, Nigeria, and Venezuela.
One could argue that China may have been more influential than the US in recent years. That is why the world market shuddered, if only briefly, when China banned the first coin offers in 2017 and closed mainland exchanges. Just a year earlier, the majority of Bitcoin was trading in Chinese yuan. China’s crypto market remained active after 2017, but the stock market closings made it much more difficult to estimate the number of traders.
For mining in particular, China has been widely seen as a disproportionate ruler, especially in hashrate, the computing power used for mining. Bitcoin’s hash rate is down over 50% in July from May when China cracked down on mining cracks, according to data from Glassnode. The hashrate has since recovered as miners set up oil rigs in other parts of the world.
“The China mining news has been an untested shock to the Bitcoin network with real immediate effects. This created real uncertainty about how the hashrate and network would affect, ”Lau said. “Compare this to the US policy discussion which could have resulted in some longer-term ramifications, specific to the US. Too vague and unrelated to the health of the network itself.”
Now that miners spread across the world, China’s influence on the Bitcoin network is waning.
We could soon see a day when no single government can have a huge impact on the price of Bitcoin. Given Bitcoin’s origins as a decentralized currency that is immune to government control, so it should be.
