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⚡Could China Reclaim Its Place in the Crypto Market❓

Croxroad

26 Jul 2024 — 5 min read

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The Daily Newsletter for Intellectually Curious Readers

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It’s only recently that Donald Trump has paid any attention to crypto. But now he wants to be the “crypto president,” and he’s raising digital assets as a geopolitical issue. Asked on July 16 why he’s suddenly embracing the crypto community, he told Bloomberg: “If we don’t do it, China is going to pick it up and China’s going to have it—or somebody else, but most likely China.” In the interview, Trump explained how the recent experience with his “Mugshot” NFT Collection “opened my eyes” to cryptocurrencies, saying, “80% of the money [from the NFT sale] was paid in crypto. It was incredible.” He added, “So we have a good foundation [i.e., crypto]. It’s a baby. It’s an infant right now. But I don’t want to be responsible for allowing another country to take over this sphere.”

His remarks raised several interesting questions—not just whether China, which banned crypto trading and Bitcoin mining in 2021, is even interested in reentering the crypto trading and mining markets. It touches on the relationship between governments and the crypto/blockchain sector generally. To what extent can any single sovereign nation control decentralised and diversified digital assets like Bitcoin and Ether? Is it even possible? China was once a major crypto player. The largest crypto exchanges, such as Binance, were located in China, and as much as 75% of Bitcoin mining took place on the Chinese mainland, according to estimates. But in 2021, China cracked down on crypto trading and mining, and by July of that year, Bitcoin mining had essentially vanished on the mainland.

Recent developments, however, have raised speculation that the Chinese government may be warming to cryptocurrency and that Hong Kong may be a testing ground for these efforts. In April 2024, the central government approved the launch of several Bitcoin exchange-traded funds (ETFs) in Hong Kong. Some observers think China wants to make Hong Kong a crypto hub despite a continued trading ban on the mainland. Does China regret vacating the crypto playing field in 2021? “Absolutely,” said Daniel Lacalle, chief economist of Tressis. He noted that China made an enormous mistake banning crypto trading and mining, particularly when they want to de-dollarize at some point. Emiliano Pagnotta, associate professor of finance at Singapore Management University, echoed this sentiment, calling Beijing’s 2021 mining crackdown a strategic blunder.

📤 Significant Bitcoin Outflows

Mt. Gox again began shifting funds on July 23, moving over 47,500 Bitcoin worth almost $3.2 billion to two unknown addresses at 5:05 am and 6:27 am UTC. According to Arkham Intelligence data, Mt. Gox holds 90,344 Bitcoin worth $6.02 billion, but this is outdated, and its current holdings now stand at around 42,744 BTC worth $2.85 billion. Following the defunct exchange’s repayments statement on July 5, it established plans to “promptly” carry out repayments to creditors that seem well underway.

The Mt. Gox wallet labelled “Mt. Gox: Cold Wallet (1Jbez)” sent 5,110 BTC worth around $340 million to an unknown wallet and the cryptocurrency exchange Bitstamp. Of the 5,110 BTC, 2,871 BTC, worth around $191 million, was sent to an unknown address starting with 1JKMS, while the remaining funds, worth $149 million, landed on Bitstamp. The preceding 42,587 BTC, worth $2.85 billion, was sent out earlier to another unknown address starting with 15yPU. On July 22, Mt. Gox began preparing to repay creditors through Bitstamp, according to onchain fund holding movements. According to Arkham Intelligence, Mt. Gox addresses “deposited $1” to four separate Bitstamp deposit addresses. “Bitstamp is 1 of 5 exchanges working with the Mt. Gox Trustee.”

Despite finance analyst Jacob King speculating in an X post on July 4 that 99% of creditors would sell their coins “the moment” they get them, a Reddit poll says otherwise. With the latest $3.2 billion in BTC shifted out of the Mt. Gox address, the tally amounts to over $12 billion offloaded to creditors since July 16. On July 16, the defunct exchange saw outflows of over 140,000 BTC in a significant move after two weeks of onchain inactivity. With a volume of almost 190,000 BTC moved in just three hours, Mt. Gox fund outflows contributed to over $12 billion in volume movements as repayments proceeded as promised.

🤙 Can You Lose a Cold Wallet?

Yes, you can lose a cold wallet. Cold storage can be as simple as a piece of paper with your keys written on it or a small device like a USB thumb drive or a cell phone. These items are easy to misplace, so it’s crucial to develop a habit of securing them in the same place every time you use them. By doing so, you minimise the risk of losing access to your valuable digital assets.

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