Crypto Market Down 50%: China’s Impact on Bitcoin

Market Outlook

The whole crypto market continues its devaluation down 50% from its peak of $2.6T to $1.3 trillion in total value, while Bitcoin tumbled by more than 10% subsequently after two negative news items coming out of the Chinese market.

First of all, the Central bank of China (PBOC) reiterated its commitment to restrict commercial banks from providing banking services to crypto businesses —specifically OTC desks and crypto exchange to curb excessive speculation, capital flight, and the financing of illicit activities. Secondly, the province of Sichuan known as the hydroelectricity epicenter of China ordered state-own power plants to cut supply for 20+ mining farms.

The former news item will accelerate new crypto use cases within the Chinese market such as underground peer-to-peer crypto transfers with the use of USD-pegged stablecoins as we reported last year. We should expect stablecoins like Tether and USD Coin to keep breaking all-time highs in market value going forward.

The latter will give birth to new bitcoin mining hubs outside China. While other miners will continue to benefit from privately-owned power plants in Sichuan, this is a noticeable blow for Chinese miners committed to zero carbon emissions. Sichuan has been the perfect example of how bitcoin mining is becoming more sustainable from a carbon footprint standpoint with renewable energy. It is important to note that the use of hydropower avoids about 200 million metric tons of carbon pollution in the United States each year, equivalent to the production of more than 38 million passenger cars.

As such, the hash rate, the measure of mining computing power, fell by 16% back to September levels. In the meantime, at 21Shares, we anticipate Chinese miners to relocate to crypto-friendly and nearby locations with attractive electricity costs like in Uzbekistan and Kazakhstan. Miners are incentivized to keep their expenses low and find the cheapest electricity prices. These countries offer some of the best deals in the world. But, unfortunately, in Kazakhstan coal fuels around 70% of electricity generation (in 2018), followed by natural gas (20% in 2018). On average, electricity prices for businesses are $0.042 KWh in Uzbekistan and $0.052 in Kazakhstan. For example, BIT Mining Limited (NYSE: BTCM) announced today that it has successfully delivered its first batch of mining machines to Kazakhstan.

The recent restrictions of mining activities in China have accelerated the paradigm shift of bitcoin mining to North America as we predicted a year ago. For example, the American company Square has pledged to support "green" bitcoin mining with $10 million to start. In the same vein, Elon Musk and Michael Saylor of MicroStrategy, held a private meeting with miners based in North America to form a council to disclose energy usage in a standardized manner and promote the use of renewable energy in the world. As anticipated, in our 2021 predictions, we also expect more initiatives to employ Bitcoin mining using renewable energy sources.

Finally, ESG also includes the social and governance aspects that are overlooked for Bitcoin. Indeed, the cryptoasset provides an option because of governance failures as an alternative financial asset and monetary system accessible to anyone with an Internet connection. Hence the Bitcoin network doesn’t impose any discrimination. The Human Rights Foundation documented the use cases proving that Bitcoin serves as an alternative and censorship-resistant monetary system to protect human rights.

Weekly Returns

The returns of the top six crypto assets over the last week were as follows — BTC (-21.21%), ETH (-25.55%), BNB (-25.46%), XRP (-29.32%), and ADA (-24.05%).

Monthly ETP Returns

The performance of our line of ETPs over the last 30 days is as follows: ABTC (-3.42%), AETH (-17.89%), ABCH (-25.18%), AXRP (-31.32%), ABNB (-6.73%), AXTZ (-19.78%), HODL (-11.21%), ABBA (-0.81%), KEYS (-10.20%), SBTC (-4.37%), ADOT (-24.34%), AXLM (-36.43%), AADA (-23.53%).

Media Coverage

Our Managing Director, Laurent Kssis featured in ETF Express commenting on the latest Financial Conduct Authority's research revealing desire for crypto investments from the UK's investing public. Read the full article here. Laurent was also invited to discuss the structure of our ETPs and provide his views on the crypto market. Watch the full interview here, you don't want to miss this one.

A YouTube channel called “Apprendre à Investir” featured our ETPs in French. Watch the full article here.