Some context
Certainly, should the headline “China unbans crypto” prove true, it would likely ignite the next bull run in the crypto market. However, until such time, there have been some promising developments in Asia, particularly in light of the negative news about the US government’s ban on staking services and the regulatory crackdown on stablecoins.
The injection of the biggest amount of liquidity ever seen in a single day in Chinese history came after China announced its zero virus policy which means the economy will re-enter terms similar to pre-pandemic.
From a macro perspective, the Fed’s decision to shrink its portfolio by unwinding US$95B a month was counteracted by the US$92B inflow into the market by the Chinese just in a single day. It won’t be difficult to calculate the net capital inflow.
This could be a contributing factor to the recent crypto rally. Even with the massive fiscal tightening in the US, China reopening its 3-year covid lockdown is undergoing unprecedented quantitative easing, just like the US did in 2020, only three years late.
With this injection of liquidity and positive market price action, massive rallies were derived to native projects such as the Chinese-affiliated tokens.
Regulation shifts in Hong Kong
Coming this year, the opening of crypto buying and selling in Hong Kong could kickstart a massive inflow of liquidity into crypto. This was known to have a huge influx of big money coming into the space from the east. Additionally, innovation will result, where we may soon see stablecoins coming out of Asian regions.
Now, note what was mentioned above, “big money”. According to CoinDesk, retail traders in Hong Kong will not be allowed to buy and sell crypto, but this service is only limited to institutional players. Yes, that is where big money comes and goes.
While this may dismay to the retail market, big players with one foot in the space can freely operate crypto in a country. This is also bullish for widespread legalization in crypto, and the space as a whole, as movements in Chinese investors, will surely head towards Hong Kong as Asia’s crypto hub.
This can be seen with big names starting to signify their interest in moving to Hong Kong. On February 15th, interactive Brokers signalled their intent to offer BTC and ETH trading to professional investors and institutions.
The US did not clutch?
Banning stablecoins and staking as a service in the US has greatly curbed innovation and left other countries the opportunity to breach the gap in the market. It also seemed the US government had lost the first mover’s advantage.
So where do innovations flee when the regulations of a country serve its boundaries? You go elsewhere where regulation permits.
Abu Dhabi, for example, started a $2B initiative to back web3 startups, and now a possible place to reside.
Wen bull run?
There is a likelihood that China’s reopening from three years of isolation due to Covid curbs could lead to a change in its crypto policy stance.
As Chinese President Xi Jinping’s administration has taken market-friendly steps to speed up economic activities, it is possible that China could allow loopholes such as the developments in Hong Kong.
A blog post made last year in October by BitMEX CEO Arthur Hayes highlights China being a pivotal player in instigating the next bull run.
However, we don’t expect immediate tide turns regarding crypto regulations in China. At best, it may take a year, but when the floodgates eventually open, it will surely reflect the Chinese pump whales created before 2020, this time, multiple folds stronger.
However, complimented by the current positive market sentiment, the “China coins” narrative has garnered interest from investors across the globe. These China-associated coins are surging in price, even when many tokenomic models may be dubious.
Playing the China coins narrative
So how do you play this narrative? According to Layergg, here is a list of China-related projects with partnerships with big companies or projects which should be listed on Binance.
Additionally, here is another set of coins to look at. Be cautioned that every token listed here is entirely speculative, assuming Chinese investors will only buy Chinese-specific tokens when liquidity comes in. Not going to lie; as with most crypto narratives, this one is no different, irrational and degenerate.
Closing thoughts
Every bull run needs liquidity, which will bring the up-only price action for tokens. While whales could artificially manufacture this with smaller cap tokens, China’s significant liquidity injection could move the entire crypto market instead.
The China crypto community is also on an entirely different level regarding alpha calls. Calls from one of their key opinion leaders could spark a massive inflow into assets, pumping the prices multiple folds. Here’s an example of when $SAND was shilled, again proving another exhibit of a degenerate market of traders.
Because crypto is also considered a “spillover asset”, it might not be the initial investment option for many investors. However, it’s still observed that when more money is injected into the market, there is a positive correlation with the crypto total market cap.
Also read What Are The Biggest Crypto VCs Betting On In 2023? And our Twitter thread below
[Editor’s Note: This article does not represent financial advice. Please do your research before investing.]
Featured Image Credit: ChainDebrief
