Given the rapidly worsening condition of US-China ties, the regulatory reaction to cryptocurrencies in the United States will likely turn out to be more accommodating, according to Christopher Wood, global head of equity strategy at Jefferies.
Despite China’s crackdown, Wood believes the most pressing issue is the regulatory stance towards cryptocurrency in the Western world, notably in the United States.
Last month, US Securities and Exchange Commission (SEC) Chairman Gary Gensler stated that the SEC will develop a crypto regulatory framework next year, implying that Bitcoin will not be outlawed immediately.
Gensler wants to come up with a definite regulatory plan, according to Wood’s weekly research report, Greed and Fear. “That would ultimately be very positive since bitcoin or other crypto assets can only really fulfil their network potential, in terms of mass adoption, if they become part of the system,” Wood wrote in Greed and Fear
Institutions in China have stepped up their crackdown on bitcoin mining in the last two weeks after the People’s Bank of China (PBOC) warned the country’s banks that they are forbidden from engaging in any crypto-related business.
Speculative trading of virtual currencies, according to China’s central bank, will undermine the economy’s and financial markets’ regular functioning. According to industry estimates, China has now shut down over 90% of bitcoin mining, which used to account for almost a third of the entire crypto network’s processing capacity.
This is significant, according to Wood, since it sends a message that China does not want its citizens to hold cryptocurrency. “This is in part because of the clear ability to use so-called stable coins like Tether to circumnavigate the closed capital account. It is also, more importantly, because China does not want any competition when it launches the digital renminbi nationally, most likely in the fourth quarter of this year,” Wood expressed his opinion.
China’s central bank digital currency (CBDC) is anticipated to provide the government with complete transparency over its citizenry’s savings and spending habits. “Certainly, the decentralized aspect of blockchain technology, which is so appealing to libertarians opposed to fiat currencies as state monopolies, is the complete antithesis of China’s collectivist system. The People’s Republic of China clearly understands this. This is certainly a far more important issue to Beijing than the carbon generating aspects of bitcoin mining,” Wood added. However, due to worries over bitcoin mining’s environmental effect and a regulatory crackdown in China, the world’s largest cryptocurrency has dropped about 50% from its all-time high.