Ethereum (ETH) Leads, Market Absorbs China Ban News
The new week opened with a 10% growth of ETH market prices, taking the asset above $3,100 again. The recovery tracked Bitcoin (BTC), which rose above $44,000, regaining nearly 5% in the past 24 hours.
The latest market crash, which sent BTC under $42,000 and kept ETH depressed was caused by another variation of a Chinese government ban on cryptocurrency. This time, People’s Bank of China, the central bank regulator, stated all crypto transactions were illegal.
The Chinese government has made multiple attempts to limit crypto-related activity in the country. Starting with a limitation on trading fiat for BTC in September 2017, the Chinese trading community managed to adapt and use dollar-denominated stablecoins. China has also cracked down on ICO sales, as well as mining activities.
As a paradox, the market has also boomed significantly over several historical periods following the temporary shock of another “China ban”.
DeFi Ecosystem Recovers First
Although all assets inched up, the most significant recovery happened within the Ethereum-based DeFi ecosystem.
Uniswap (UNI) was the fastest moving asset, adding more than 31% to its price and returning to its usual range around $25. The Uniswap exchange now carries more than $1.49B in reported volumes, a level comparable to that of the Binance exchange during less active periods.
Overall recovery in the DeFi sector lifted the total value locked to above $85B, near its usual range in the past months. The total value of DeFi tokens is once again around $137B, gaining 8.55% in the past 24 hours.
Chinese Traders Stress-Test USDT
One of the drivers of investment for the Chinese market was the Tether (USDT) stablecoin. Over the years, Chinese traders have used the asset for transfers to multiple exchanges, as well as a source of OTC trades.
USDT, which is available on nine different blockchains, saw significant demand for both spot and derivative trades. But after the latest news of a ban to all digital asset transfers, USDT saw trading anomalies on the OTC market.
So far, USDT has preserved its dollar peg on most exchanges, while also dropping by up to 4.5% against the Chinese yuan. The trading anomaly was due to a fire sale and an attempt to cash out of all cryptocurrency positions.
Chinese Traders Locked Out of Exchanges
The weekend shock of the PBC announcement may continue in the coming months. The curb of digital asset activity means mainland China traders will not be able to access some of the biggest centralized crypto markets.
Both the Binance exchange and Huobi Global announced they plan to phase out registrations from mainland China. For now, Binance traders will keep their accounts, but no new registrations from mainland China will be possible. Huobi will also start closing the existing accounts over the coming months.
The coming weeks will show if the demand for trading will spill over to offshore markets, or give a boost to decentralized exchanges.
The OKEx exchange, another large-scale operator with presence in Asia, has also stopped taking in new Chinese registrations. The exchange, however, expects growth in its subsidiary markets.
Holders Not Giving Up on BTC
Despite the short-term market shocks, the overall trend is for more BTC to be held with a long-term perspective. On-chain data suggest this time, BTC was almost unaffected by panic selling, and in fact holding behavior increased.
BTC is going through a significant supply crunch. This time, cryptocurrency trading is more decentralized and there are highly active markets despite some regulatory limitations.
Miners have also not given up on their activity, keeping up the pace of block creation. The full level of mining has not recovered to the levels since before China limited rig farms in Sichuan, but alternative farms have come online.
The Ethereum network hashrate is also near an all-time high, despite the new fee schedule and a relatively low block fee.
Can China’s Ban Accelerate Crypto Demand
The cryptocurrency collection of projects is much richer in 2021, with additional activity opportunities. One of the tools available is the riskier, though less regulated usage of decentralized exchanges. A new arrival, NFT market platforms, is also growing in volumes and demand.
There are some expectations that retail users locked out of Binance or Huobi could still use Binance Smart Chain, SushiSwap, or switch to cryptocurrency collectibles. With access to exchanges locked up, mainland Chinese retail demand may turn to crypt games, decentralized trading or collections.
China has also had a conflicting relation with digital assets, closely monitoring the development of blockchain technology and even creating regulatory sandbox zones for crypto innovation. Justin Sun, founder of the TRON network, claimed the country’s government is not entirely hostile to crypto platforms.
In the short term, however, the digital asset market proved panic is still real and can bring down price levels fast.
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