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Are Bitcoin and Crypto Prices Totally Dependent on China?

Are Bitcoin and Crypto Prices Totally Dependent on China?

In 2019, China banned initial coin offerings. In 2021, according to Reuters, the country stepped up its crackdown on cryptocurrency by banning financial institutions and payment companies from providing cryptocurrency transaction services and warned investors against speculative crypto trading. These were attempts by China to clamp down on the digital trading market. Considering this anti-crypto stance, how can China be influential on cryptocurrency prices? Despite the country's attempts to wean its economy off of cryptocurrencies, the nation still exerts significant influence on prices.

**A Relationship That Turned Sour?**

First, a little bit of history about cryptocurrencies in China because the relationship has been complicated.

Before the government’s volte-face in 2017, China was among the earliest countries to enthusiastically embrace cryptocurrencies. In 2013, a Chinese charity began accepting bitcoin, and a wave of businesses followed suit by accepting cryptocurrencies. Even Baidu, China’s search engine giant, began accepting bitcoin for website security services. Miners set up shop immediately afterward.

Bitcoin’s politics aside, Chinese investors are enamored with cryptocurrencies and their ability to transcend borders. A QZ article quoted an engineer at the Chinese Academy of Sciences in Shanghai saying that the Chinese buy bitcoin because it will increase in value and hedge against inflation.

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**An added attraction is that bitcoin transactions are free from government control.**

Bobby Lee, the founder of the BTC China exchange, said the Chinese don’t care about the political aspects of bitcoin. “What they care about is income—can bitcoin make me money now?” he said. As China’s economic growth engine has slowed, those factors have become important.

Returns from conventional state-backed investments have dwindled. Rich Chinese are reportedly hunting for investment opportunities abroad and exchanging local currency for U.S. dollars. In response, the government had instituted capital controls to prevent yuan outflow and a subsequent drop in its value. Bitcoin and other cryptocurrencies offer protection against a slowing economy and capital controls at home.