Bitcoin’s Rally Flying in the Face of Central Bank Regulation
Wednesday, Bitcoin is trading at 3938+, rising about 20% from the lows marked last Friday, as concern eases that a crackdown by Chinese regulators will hinder the growth of the alternative method of exchange.
After marking a record high at 4,921 on 1 September, the digital currency fell to 2,975 on 15 September.
Prices are rebounding because traders in China are likely to switch to alternative exchanges or seek loopholes in the regulation, said a DC research firm focusing on cryptocurrencies.
“The efficacy of any Bitcoin ban is pretty dubious,” it said. “It’s bullish because if a powerful government like China feels the need to ban major trading, then it’s a good indicator that the technology works and that it does what it’s supposed to. If it overcomes those controls, then it’s further proof that it’s independent from government controls, which is pretty radical.”
China banned fundraising by selling digital coins, known as ICOs (initial coin offerings), and will likely ban trading of Bitcoin and other virtual currencies on domestic exchanges. And has increased oversight on messaging app WeChat, which Bitcoin traders use to communicate.
Tighter regulation makes access to cryptocurrency difficult, but speculators and investors can trade the digital assets OTC or go to exchanges based in other jurisdictions.
Instead of WeChat, cryptocurrency players are already migrating to encrypted messaging service Telegram.
On the ICO side, they can set up companies in countries where regulation on the sector is more lax.
Bitcoin trading Vs RMB Yuan (CNY) has fallen to 19% of total volume in the past 6 months, from about 90% last year after Chinese regulators clamped down on the market earlier this year.
The USD is now the most traded currency against Bitcoin, accounting for 54% of total volume in the past 6 months.
Bitcoin dove almost 20% in the 2 days after Chinese authorities did on-site inspections of Bitcoin exchanges early January and slumped again after China’s central bank took steps to prevent withdrawals of the cryptocurrency in February. The virtual asset recovered and its price has almost 4X’d since.
The Big Q: What is next?
The Big A: The Key resistance is 4,000, that is the mark to watch, as it a tapping against it now.
“If we hold at 4,000 we have a nice shot to make a new high on the year,” said 1 savvy observer. “If not, then it’ll roll over to retest the lows at 2,875.”