China’ s move to declare cryptocurrency Initial Coin Offerings (ICO) illegal is a declaration that they’re worried about continued capital flight out of the country. Ethereum has a lot to prove now.
China just went full on Evil Empire with its announcement to declare all ICO’s illegal. This is typical of a regime whose mismanagement of the economy led to Bitcoin’s initial growth in 2013 through 2014’s peak.
China has a credit bubble situation that dwarfs the U.S.’s debt problem by an order of magnitude and the Chinese authorities understand this. This move by them is to try and batten down the financial hatches while China is looking to attract investment funds into the Yuan.
Between allowing offshore investment into Chinese government debt and the gold-backed oil futures contract, China is making a major push to broaden the Yuan’s appeal as a reserve asset.
It simply cannot have billions of Yuan being sucked out of a banking sector struggling with trillions in re-hypothecated toxic debt into the Wild West of the ICO market. That’s what this is about.
The question now is will this be the moment where the crypto-space stands tall as a real, vibrant and maturing marketplace or will it wilt under the pressure.
Trust me, this isn’t the last of these announcements. More are coming from the EU and the U.S. They will be timed to do maximal damage.
Shot into the Ether
Let’s watch the response from Ethereum today. It is the most vulnerable to this announcement from China since a great number of ICO’s are issuing ERC-20 compliant tokens. Those ICO’s may have to be reversed, unless the issuers defy China’s demands.
Which is distinctly possible given the lack of coverage of international law in this area. How is China going to enforce this edict? How much money are they willing to spend to reverse individual investments into these ICO’s?
Look for a one or two-bar reversal first on the 30 minute, then the 1 hour chart for a temp bottom in ETH
Ethereum will likely fall in the short-run here on panic-selling. The Powers-That-Be will then begin leaning on the exchanges demanding redemptions that sites like Coinbase do not have the liquidity to fulfill. That’s step 2 and it’s been set up in recent weeks with moves against BTC-E and reports of problems (rightly so) about Coinbase.
Bitfinex recently shut U.S. customers out of its exchange because we are too much of a hassle to deal with thanks to the U.S. Know-Your-Customer and FATCA laws.
So, don’t think for a second that the U.S. Government doesn’t have traders in the Bitcoin pits bidding up the price for the opportunity to destroy a vital part of the crypto-infrastructure, just like they did with Mt. Gox back in 2014.
Then, if the ICO’s are reversed, there will be some stabilizing of Ethereum as trades are reversed. At that point is when Ethereum will show its mettle. Will it hold that trading range or will it fall from lack of ICO demand? We’ll find out in the next couple of weeks.
If it survives above $250 then I would say this was a shot that missed its target.
The Push into Privacy
Also, the more the Empires Strike Back here the more privacy-oriented coins like DASH and Monero gain in importance. You can’t stop an idea whose time has come anymore than King Canute could hold back the tides. China and the SEC will only drive the capital underground and force more and more of the blockchain into private coins/tokens.
Steem needs to immediately begin implementing Monero’s Ring Signature system into the network. If the Witnesses want to raise the value of the Steem token. This is the next ‘killer app’ in crypto. And it’s needed like yesterday.