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China’s Ban on Bitcoin and Crypto’s Bounce Back Ability

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Bitcoin is on shaky ground once again, as China’s central bank declares all cryptocurrency transactions illegal. The change in law has effectively banned trading in cryptocurrencies across the country.

It has introduced China’s final stance in the virtual currency debate, though it can be argued that this outright ban had been on the horizon for years.

With the announcement of this new policy, we watched Bitcoin prices dip as people inevitably reacted to the news, but it seems the market leader has already bounced back. According to Market Insider, Bitcoin has been declared “dead” over 400 times since its creation in 2009 and has faced countless denouncements from finance and business specialists over the years. One of the most notable, recent criticisms of Bitcoin came from Elon musk as he, now infamously, turned his back on the virtual coin which he had previously enthusiastically supported, once accepting Bitcoin as a payment method for Tesla products. The sudden change of tack caused some disruption to public perceptions of cryptocurrency and yet, Bitcoin has remained popular amongst investors and traders. But why?

Currently, only a handful of companies accept Bitcoin in exchange for products and only one country in the world accepts it as legal tender: El Salvador. So, despite its promise and potential as a decentralised currency, bitcoin is not accepted by the majority of banks, businesses, and countries. Despite this, many of the staunch defenders of cryptocurrency believe that it is the future of finance. The idea of a decentralised bank effectively introduces more flexibility with money movement and also takes away a reliance on banks. Theoretically, virtual coins would not need to go through an exchange rate to be used in various countries and could allow businesses to transfer assets between international locations with more ease. However, none of these hopes have come to fruition as of yet.  So, why does it have value if it has limited real life application?

Like many industries, businesses, products, and stocks, the cryptocurrency market worth is driven by community involvement. The investors and miners involved in cryptocurrency, Bitcoin especially, are incredibly dedicated to the alternative currency. The finite nature of virtual coins also drives demand and value, meaning that despite the numerous market panics caused by major disruptions to the industry and the retraction of celebrity endorsements, the industry recovers its stock value quickly.

However, China’s all-out ban could cause future issues for cryptocurrency. China’s low electricity costs and affordable technology hardware has made it one of the world’s leading hotspots for coin mining. In 2021, China accounted for 75% of the world’s Bitcoin energy use, but now in 2021, it has fallen to 46% and a mining migration has started out of china and into alternative, affordable locations. As one of the major mining hubs because of its cheaper prices, China’s rejection of digital currency might have a long term impact on the industry’s ability to mine to a similar output.

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