The People’s Bank of China (PBoC), China’s central bank published a memo last month that criminalized virtually all cryptocurrency activity. Bitcoin (BTC), which was then circulating online, dropped 6.5% after the memo went viral. Industry experts said that the news was the perfect opportunity to dip-buy.
China cracked down on crypto years ago. Bitcoin experienced its largest mining difficulty drop of almost 28% in July this year. This was because miners began migrating from China to trade and mine bitcoins after the government tightened their grip on the matter. Nearly 50% of the computing power required to secure the Bitcoin network, or its hash rate, was lost in the crackdown. Every remaining exchange and mining operation had to be shut down by the PBoC’s latest memo.
Now, fast forward to October and Bitcoin mining operations seem to be on the mend. Glassnode, an on-chain analytics provider, says that Bitcoin’s hashrate has mostly recovered from the slump resulting from China’s crackdown.
According to the firm’s “Week on-chain” report, both BTC’s mining difficulty and hashrate were on a “consistent track to recovery.” The data shows that Bitcoin’s hashrate is close to pre-exodus levels, while its trajectory continues to climb.
Cointelegraph spoke to Sacha Ghebali about TheTie’s director of strategy and business at the cryptocurrency data provider.
“Majority of miners bought hash rate from Chinese miners after the ban. This, along with increased U.S. institutional miners activity, may explain the recovery of hash rates.”
Ghebali said that the quick recovery of the crypto market was mainly fueled by the prospect of a futures ETF finally arriving on the market, which would create “intense purchasing pressure.”
Bitcoin’s price rose earlier in the month due to speculation that an ETF like this would be approved by US Securities and Exchange Commission (SEC). Eric Balchunas, a Bloomberg senior analyst, has stated that he is 75% sure approval is imminent. The prospect of a Bitcoin ETF being offered in the U.S. seemed to have weighed less on the Chinese market than China’s crackdown.
Bitcoin whales purchase the dip
Blockchain data shows that big players took advantage Bitcoin’s price fall following the PBoC memo to purchase the dip and add BTC to their accounts. Chief executive officer of crypto analytics firm CryptoQuant Ki Young Ju tweeted that someone had bought up to $1.6 billion of BTC via market order in just five minutes on a central exchange.
Cointelegraph spoke to Pete Humiston, Kraken Intelligence manager, who dismissed China’s ban and stated:
“Last month marked the 14th consecutive time that Chinese authorities cracked down on crypto industry. Markets may have priced in the China crackdown and each announcement will have less impact on spot prices.
Humiston said that long-term Bitcoin holders were joining whales to take advantage of the news. Humiston also stated that the percentage of Bitcoin held in whale wallets (defined as those with more than 100 BTC) reached an all-time high in September at 11.88 million BTC.
Humiston noted that these wallets account for more than half the total BTC supply. This pressured the marketable supply of BTC, making it subject to volatility amid growing demand. Humiston believes this helps explain why the rise to $50,000.
Kraken Intelligence’s findings have shown that markets can initially fall in response to news about China. However, historically, BTC has rallied more than +50% over the 90 days following.
Long-term holders and whales may not have been all that accumulated BTC after the ban. Glassnode data shows that the number of BTC addresses with more than one coin has reached a four month high.
#Bitcoin $BTC Number of Addresses Holding 1+ Coins just reached a 4-month high of 813,311 Previous 4-month high of 813,293 was observed on 07 October 2021 View metric:https://t.co/s7tx1xxyz3 pic.twitter.com/0JvEo9N6mr
— Glassnode Alerts (@glassnodealerts), October 11, 2021
Marie Tatibouet is the chief marketing officer of cryptocurrency exchange Gate.io. She told Cointelegraph that Jerome Powell, the Federal Reserve Chairman, stated that the Fed does not intend to ban Bitcoin. This could have also led to the accumulation.
Unique Bitcoin addresses
Although Bitcoin’s price recovery could be explained by other factors, such as the U.S. response against China’s cryptocurrency ban; the number of unique Bitcoin addresses on the blockchain has been increasing.
Because any entity can create hundreds, if not thousands of addresses, it’s difficult to know how many people are using Bitcoin. Because most users only have one or two active addresses, unique address numbers can be used to gauge user levels.
Nick Jones, CEO of Zumo and cofounder of the cryptocurrency exchange and wallet Zumo, spoke to Cointelegraph. He suggested that unique address usage could increase as market participants have more certainty about what lies ahead.
Markets crave certainty. China’s ban on crypto has been a constant headline for many years. Making a clear break provides much-needed clarity, and can be easily absorbed over the long-term, as we saw earlier this year with the forced relocation from China of its mining infrastructure.
The entrepreneur said that China’s central bank digital currency is not a coincidence, suggesting that this move was not “any fundamental statement about crypto or the blockchain” but rather was meant to encourage the adoption of its digital currency.
Jack McDonald, CEO at crypto-asset custodian Standard Custody and Trust said that China’s ban was a “good sign for crypto confidence,” but suggested that market activity has been increasing since cryptocurrency markets have historically trended upwards in the last quarter.
McDonald’s offered another explanation for the increase in unique addresses:
“It was moves like these that inspired Satoshi and motivated him to create Bitcoin as an alternative to government-issued, controlled fiat currencies. China has had capital controls that are strict on its citizens for a long time. Therefore, it is understandable that they would ban crypto. This has been a common way its citizens escape capital controls.
Whether the cryptocurrency market participants gained confidence after China’s ban or simply ignored it, and expect upward momentum in Q4, of whether they adopted crypto to escape capital control controls, one thing remains certain: The market is recovering.
Eileen Wilson –Technology and Energy
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