VYSYN Ventures Weekly Insights #80 — Bitcoin sheds the shackles of a long-dominant force
Chinese influence on the cryptocurrency industry has lasted for close to a decade. Since the early days of Bitcoin, market share in every aspect of the blockchain industry has been dominated by China. This situation resulted in the dependence of the industry on the Asian giant. With the crypto ban of 2021, things have begun to change as Chinese influence has waned dramatically.
In the latest VYSYN Release, we examine the prolonged influence of China over a supposedly decentralized industry. We highlight the events leading to the dwindling influence, and the potential benefits that this could hold for the blockchain and cryptocurrency industry moving forward.
One decade of China’s crypto dominance
For many years, China was the blockchain and cryptocurrency hub of the world. Several factors led to early cryptocurrency adopters flocking to China. Relatively cheap electricity and favorable weather conditions for running Bitcoin mining equipment were significant factors.
Bitcoin mining requires sophisticated computer processors which solve mathematical algorithms to confirm transactions on the Bitcoin network. The process consumes a lot of electrical energy. With the initial absence of regulation in the early days of Bitcoin and cryptocurrencies, China provided a suitable environment for such mining operations.
Apart from mining, China’s huge population was also attractive for early cryptocurrency projects seeking user adoption. In turn, this led to investors flocking to China and a supportive ecosystem blossomed. Project creators found it easier to market their products to locals before going abroad.
These factors caused most cryptocurrency projects to gravitate towards China. However, cryptocurrencies ability to create a shadow economy and circumvent traditional, centralized controls soon posed a problem for the government.
China’s prolonged war against cryptocurrencies
As the blockchain industry evolved, regulation became a concern for the mainstream financial industry and government. Socio-political interests also led governments to try curbing the expansion of blockchain and cryptocurrencies. As far back as 2013, the Chinese government began displaying resistance towards cryptocurrencies.
On December 5th, 2013, the People’s Bank of China (PBoC) issued a warning to commercial banks in the country, instructing them to not handle transactions involving Bitcoin. According to the PBoC, the ban was initiated because Bitcoin was not backed by any nation or central authority, adding that it was planning to set up efforts to curb the use of Bitcoin to launder cash. This led to a huge drop in Bitcoin price from over $1,130 to $545 in 72 hours.
At different times throughout the previous decade, China rolled out bans that reverberated across the entire industry. September 4th, 2017 was another infamous date as China dropped the hammer on cryptocurrency activities. This time around, the PBoC banned Initial Coin Offerings (ICOs), describing them as illegal fundraising mechanisms. At the time, the Chinese authorities banned ICO platforms from issuing ICO tokens and ordered monies raised via ICOs returned to investors. This time, Bitcoin’s price dropped from over $4,900 to $2,972 in the space of 10 days.
In 2019, the Chinese government shifted its attention to restricting Bitcoin mining activities. In April of the same year, China’s National Development and Reform Commission (NDRC) labeled bitcoin mining an “undesirable” industry since it did not align with the nation’s environmental goals.
2021 crypto ban the final straw
Despite these bans, Bitcoin and cryptocurrency activities grew in China. In late 2020, Chinese authorities geared up to eliminate cryptocurrency use in the country. China’s crypto clampdown was one of 2021’s key industry events and was a culmination of the events of the previous decade. This time around, the authorities did not just issue warnings, but accompanied all threats with serious enforcement that led to a mass exodus of cryptocurrency practitioners from the country.
Between May and September 2021, different warnings were issued, with each of them followed by strict enforcement. Miners were forced out of China, which led to the drop of the Bitcoin global mining hashrate within the period. Other crypto practitioners have also been expelled, including exchanges. Most of them relocated, with the remaining few shutting down services by the end of the year.
The Chinese clampdown has taken its toll on the cryptocurrency industry. It led to price fluctuations in the market initially as investors feared possible global repercussions. However, Bitcoin has shown a lot of resilience, as have other cryptocurrencies. With every setback, the market has always rebounded, making higher highs. Even the Bitcoin hashrate that dropped to significantly low levels has recovered, thanks to the miners who have relocated to more friendly regions and more hardware coming on to the market.
A new era begins for cryptocurrencies
The recent pullback in the price of Bitcoin and cryptocurrencies has been attributed to a sell-off in the market by Chinese customers trying to meet the deadline issued by their exchanges. It is still part of the impact of China’s influence on the cryptocurrency market, which is perhaps in its final lap.
After this, China will no longer remain the global hub for cryptocurrency activities. For now, no region can claim that status as operations have become more decentralized and evenly spread across different parts of the world. It reflects the original intention of Satoshi Nakamoto whose goal for Bitcoin was a decentralized network without any monopolies.
Having survived the setback from China in 2021, Bitcoin and cryptocurrencies are entering into a new phase. No longer will a particular region influence the entire industry using its local regulatory events. Bitcoin and cryptocurrency users are optimistic ahead of the new year. Many of them expect that the market will become healthier and may head towards higher price levels.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown to USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocations, versatile marketing support, and tech assistance.