Whether or not crypto is banned, or forbidden to be used in certain jurisdictions will only have a very limited impact on the continued expansion of the space.
Much has been written about the news out of mainland China where, once again, certain agencies and policymaking bodies have banned and/or forbidden certain entities from transacting in bitcoin and other cryptocurrency. These announcements follow several enforcement efforts targeted at bitcoin miners for an array of environmental and power consumption concerns. Regardless, this is nothing new, as previous bans and edicts have also been issued by the central government over the last several years.
As has happened before, these announced bans and subsequent ripple effects have also placed significant downward pressure on the price of bitcoin and other crypto. Setting aside the anxiety such volatility can produce for some investors, it is – just like for other assets – short-term noise. Bans have a long track record, across geographic and economic lines, of ultimately not succeeding; if the market wants a product or service individuals will find a way to access it.
What these continued bans and enforcement actions might lead to, however, is an increasingly bifurcated cryptoasset landscape moving, but what exactly would that mean? Predictions are notoriously tough to get right, and doubly so for such a fast moving and rapidly evolving area such as crypto. Compounding this difficulty is the fact that, even as mainland China renews its crackdown on bitcoin and other crypto, other nations such as El Salvador are planning to adopt it as a medium of exchange.
Let’s take a look at some of the potential trends and directions that this pushing and pulling in the crypto market could result in going forward.
Bitcoin returns to leadership. Ever since some of the froth had been let out of the most recent bitcoin bull market there has been conversation around whether or not bitcoin will retain its leadership standing in the cryptoasset space. Be it the flippening, the proliferation of stablecoins, new products and services such as non-fungible tokens (NFTs) that do not run on the bitcoin blockchain, or the new entrance of central bank digital currencies (CBDC) there are any number of forces that seem to foretell the dethroning of bitcoin from the top of the crypto sector.
With trends toward centralization, however, the risks of these newer products and services have become more pronounced. The decentralization, and lack of central control points associated with bitcoin are once again demonstrating just how powerful and valuable they are for the continued proliferation of crypto.
Volatility, again, is stressful but does not foretell the doom of bitcoin.
Price stability is coming. It might seem odd to be discussing price stability as bitcoin and other crypto continue to demonstrate significant volatility alongside both positive and negative headlines. That said, it is worth pointing out that a component of price volatility – for crypto or any other financial instruments – is driven at least partially by market uncertainty. Even headlines that are superficially negative can deliver some positive news in the effect of greater transparency and clarity as to what directions the market will move in going forward.
In other words, negative headlines actually help 1) potentially shake out some of the more speculative holders and participants, and 2) remove some of the ambiguity that can artificially keep prices lower and/or more volatile than they otherwise might be.
Crypto durability. A lot of discussion has been had, fortunately not as much recently as several years ago, about how fragile or nascent the cryptoasset sector is when compared to other markets. It is safe to say the last year or so has seen quite a few developments that would have – if the crypto sector truly was delicate – permanently deflate the sector. Even with price declines, policy choices that are not supportive of the space, and various CEOs weighing in via social media, the sector continues to develop, mature, and expand.
It is worth noting that even with the price volatility, both upwards and downwards, new applications and use cases continue to enter the space on a continuous basis. Decentralized finance (DeFi) by itself is an asset class and sector worth nearly $100 billion by itself in terms of total valued locked (TVL). No matter what specific aspect of crypto is examined, the durability and viability of crypto continues to strengthen even in the face of occasional negative headlines.
Trying to ban or forbid any good or service that is desired by the marketplace is, and always has been, an nearly impossible task. Bitcoin and other cryptoassets deliver tangible value to the end users, continue to build out and refine the underlying networks, and continue to mature and become an integral part of the global payments infrastructure. Bitcoin is not a perfect idea, but it represents an idea, product, service, and platform whose time has come. Attempting to artificially suppress adoption of crypto will simply make it stronger and more durable going forward.