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Bitcoin’s performance has been relatively flat this year, caught between bull and bear rallies while trading within a defined range. Despite being a far cry from the COVID-19-induced highs, Bitcoin has held steady and is nowhere near the lows it touched after the FTX cryptocurrency exchange’s collapse, when it dropped just above $16,000 USD per 1 BTC.
One of the anticipated events that typically has a positive impact on Bitcoin’s price is the halving. This process involves cutting the rewards for miners in half, thereby reducing the supply of new Bitcoin. Halving occurs at programmed intervals based on the number of mined Bitcoin blocks. The next Bitcoin halving is scheduled for around April 24th, 2024, once block number 840,000 is successfully mined. It aligns with Bitcoin’s core belief that as you decrease the supply of a scarce asset, its price will increase.
Bitcoin’s programmed deflation stands in stark contrast to the inflation accompanying the growth of fiat monetary supply, as seen with the US dollar. An example of the potential benefits of halving is evident when, one year after the 2020 halving, Bitcoin’s price surged by a staggering 533%.
The key question now is whether history will repeat itself with the upcoming halving, or whether the crypto market will experience another cycle of disruptive events, akin to the implementation of China’s proposed cryptocurrency mining ban, which adversely affected prices in 2021. To answer this, we need to delve into the complex relationship between China and Bitcoin.
China’s Impact on Bitcoin’s Price
It’s no exaggeration to say that China has had a profound influence on Bitcoin’s price history. However, several factors indicate that China’s actions may be more neutral for the market until at least the next halving.
The Current State of Bitcoin in China
China has taken a tough stance on Bitcoin mining through a State Council decree and has banned most forms of cryptocurrency transactions on exchanges. The State Council is China’s highest state administrative body, with significant authority, particularly when it comes to regulating and developing economic growth.
When the State Council makes a statement on a particular topic, other branches of the Chinese government swiftly align with its directives. For instance, provinces like Sichuan and Inner Mongolia, which had been relatively lenient with Bitcoin miners, tightened their plans to phase out mining operations following the State Council’s stance.
The retirement of Liu He, the Vice Premier who chaired the committee that implemented the effective Bitcoin mining ban, has resulted in a shift of focus away from Bitcoin as a top-level concern in China’s state administration. Liu He still provides informal consultation on economic matters, but Bitcoin is unlikely to return as a major political issue as the Chinese government focuses on broader economic and trade concerns with the West.
Bitcoin as Virtual Property in China
In the Chinese court system, Bitcoin is recognized as virtual property and a defensible virtual commodity, a classification that has been in place for several years. China’s regulations on cryptocurrencies, known as the “Key Prohibition Rules,” make it illegal to act as a central counterparty for the exchange of cryptocurrencies for legal tender or other cryptocurrencies. It’s also illegal to raise funds through initial coin offerings (ICOs).
This means that there are no Bitcoin exchanges of significant scale headquartered in China, and there is a strict ban on using cryptocurrencies as legal tender. However, the right for Chinese citizens to hold Bitcoin as a virtual commodity has been upheld by multiple court decisions.
It’s unlikely that the Chinese government will aggressively target Chinese citizens who hold Bitcoin due to the combination of protections for virtual property and bans that focus on the use of Bitcoin as legal tender. Rather, centralized businesses such as exchanges and Bitcoin miners are the primary targets of such regulations.
Bitcoin Accessibility and Usage in China
So far, China has not implemented the most extreme measures to eliminate Bitcoin. While Bitcoin mining operations have faced power usage-related confiscations, widespread seizures of Bitcoin from Chinese citizens or a comprehensive ban on Bitcoin protocol ports have not occurred.
The Chinese government has made it challenging to purchase Bitcoin with the Yuan, but using Tether to buy Bitcoin remains an open secret for over-the-counter (OTC) exchanges. Any potential disruption is more likely to come from the failure of exchanges or a major stablecoin rather than from the Chinese government’s actions.
Recent Developments in China: Shanghai Court Ruling and Hong Kong
Two recent developments in China provide some optimism for the cryptocurrency market. First, a Shanghai court ruling, while nuanced, essentially acknowledges that Bitcoin and other digital assets are commodities, affording them protection from seizure under China’s civil code.
In Hong Kong, signs of a need for capital inflows have led the region to embrace cryptocurrency exchanges, possibly as a way to signal business as usual after a period of political unrest. However, early signs of trouble, such as the failure of Hong
Kong-based JPEX, have raised concerns about the regulatory regime for cryptocurrency exchanges.
Exporting Ideology and Bitcoin’s Future
China’s influence on Bitcoin extends to the export of its ideology. China was among the first to attempt to control Bitcoin, driven by concerns related to capital controls in a closed economic system and the substantial Bitcoin mining activity within its borders. The arguments against proof-of-work Bitcoin being energy-wasteful have started emerging in individual U.S. states and European legislation.
While other states may follow China’s lead, this may impact Bitcoin’s price differently, as these actions are newer than China’s current approach.
The Next Halving and China
The 2024 halving may lack the excitement of previous halving events in China, where social media buzzed with each occurrence, given the large number of Bitcoin miners in the country. This time, it may be less exuberant.
Nevertheless, the significance of Bitcoin may increase as capital flight becomes more pronounced across China. Whether major Chinese political events will shape Bitcoin prices until then is doubtful, as proactive actions from the Chinese government
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