China crypto rally

$100 Billion Just Flowed Into Crypto. What Does This Mean?

4 min read

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The China crypto market: Last week, more than US$100 billion made its way into the crypto market, driving the price of Bitcoin (BTC) upwards to reach a new yearly high of US$25,100 by the wee hours of today’s Monday morning, Australia time.

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The crypto market’s rally since the beginning of the year has been welcomed by many digital asset investors, but many market participants have been anxiously awaiting a sudden drawdown, particularly in the wake of the recent spree of crackdowns and regulatory action against crypto heavyweights in the United States. So where to from here?

Last week, the US Securities and Exchange Commission (SEC) came down hard on Binance by way of a company called Paxos, and the week before, the regulator slammed US-based crypto exchange Kraken with a US$30 million fine and ordered it to shut down its staking products, sounding alarm bells for the practice of crypto ‘staking’ in its entirety.

The SEC launched a lawsuit against Paxos Trust for issuing the Binance USD (BUSD) stablecoin.

Given the state of the industry over the past 18 months, negative events like these would have typically inspired some sort of drastic sell off, especially considering the fact that the crypto economy just endured the collapse of FTX and the broader hit to sentiment that came along with it.

While it can difficult to pin down exact reasons for why markets respond to news the way they do, it seems as though crypto investors have started placing their bets on the hope that other countries will start taking to cryptocurrencies more amicably than the United States, with a particular focus on projects in Hong Kong and China.

The China crypto market: Asia’s newfound appetite for crypto

Much of the recent buying activity occurred around the same time that Coinbase CEO Brian Armstrong published the following tweet referencing the introduction of wide scale crypto trading in Hong Kong. While Brian’s tweet certainly isn’t responsible for kickstarting the market, it definitely supports the wider narrative that Asian countries are beginning to look at cryptocurrency in a more positive light.

An important thing to note is that while Hong Kong will begin handing out crypto licences to accredited institutional investors as of June 1, the retail trading of cryptocurrency for everyday citizens of Hong Kong remains firmly off the cards.

Regardless, the broader market loved the news, and many of the tokens with links to China and Hong Kong jumped on the back of the speculation that Asian investors are buying into crypto with renewed vigour.

The influx of cash into crypto also came around the same time as China’s central bank injected roughly US$90 billion worth of fresh capital into domestic markets, in attempt to revitalise economic activity in the country which has declined significantly following the nation’s hardline “zero Covid” policy.

“Hong Kong tokens” take off

On Wednesday last week, the Hong Kong-based crypto company Conflux (CFX) announced a partnership with China Telcom to bring a blockchain-based mobile SIM card to market. At the time of writing, Conflux’s CFX token has since gained a staggering 677% over the course of the last month.

Another much smaller Hong Kong-based cryptocurrency project called V Systems (VSYS), a company that specialises in blockchain development, has gained more than 130% over the last few days.

Additionally, the native token of a blockchain-powered storage system called Filecoin (FIL) has reportedly been widely advertised to many Chinese investors. At the time of writing, the FIL token has gained nearly 80% over the course of the last month.

While there is technically a wider ban on the investment in crypto in China, there are still many ways for the more tech savvy investors to skirt the “great firewall of China” including the use of Virtual Private Networks (VPNs). Before the broad-scale ban on crypto trading implemented by the Chinese government in September 2021, rallies were often driven by wide scale Chinese investment.

China’s crypto narrative is a “forced meme”

Still, not all market participants are convinced that the newfound “China narrative” is the reason for the crypto’s resurgence. Popular derivatives trader ‘Clark‘ informed his 160,000 followers that because the Chinese stock market hasn’t been performing in parallel with crypto rallies, there may be good reason to believe that much of the buying is actually coming from investors in the US looking to rotate stagnant holdings into niche sectors that are delivering higher returns.

Regardless of where the cash is flowing in from, crypto investors have welcomed the renewed wave of investment, especially following the increasingly hostile regulatory developments unfolding in the United States.