By now, you’ve heard the big news of the week of the Chinese government banning ICOs, calling them an illegal fundraising scheme. Thanks to Google Translate, you can see exactly what the PBOC (People’s Bank of China) said in English. We recommend you look at what they said, not how others interpret it.
Like the SEC in the US, China said ICOs are a violation of the country’s securities laws. Bitcoin and cryptos are transnational, bigger than any one nation. However, the significance is the size of these markets. When it comes to Bitcoin specifically, and cryptocurrencies in general, the 4 biggest markets are:
- The US
- South Korea
In the 2 largest markets we have an outright ban in one nation and a ban on some types of ICOs in the other, meaning we need to take notice and pay attention.
But is this bad for Bitcoin?
Falling in Sympathy
Have you ever seen in the stock market where GM reports lackluster earnings and Ford’s stock price goes down too? Ford moves down ‘in sympathy’ with the GM news. This happens for a couple reasons including:
- Possible sign of slowdown for the entire industry
- Inability to differentiate products
- Inability to differentiate management or operational differences between companies
- Effect of macroeconomic issues (like recession) or other external issues outside their control (weather, war, tariffs, etc)
The point is Ford and GM both sell cars, but they are not the same company. GM’s bad earnings do NOT mean that Ford will have poor earnings too. Ford has fallen in sympathy with GM.
Sympathy in the Crypto World
The concept of falling in sympathy is happening in the crypto world, too. At the moment, the ICO is Ethereum’s killer app so, like GM earnings, if one crypto was going to decline as a result of the China news it would be Ethereum.
And yet, Bitcoin and Litecoin dropped on this news too. Nearly all cryptos across the board declined on this news. Bitcoin and Litecoin have nothing to do with ICOs and their block chains are only used for their product/token. Bitcoin’s blockchain is only for Bitcoin’s use.
Why Would Bitcoin Drop?
Bitcoin is not Ethereum, yet it dropped too. Here are a couple reasons why this happened:
- For those that only glance at headlines and aren’t serious about cryptocurrencies, it’s easy to think an announcement like this is a slam on Bitcoin or even a ban. It isn’t. Bitcoin has mostly good news including Japan’s openness to using it as legal tender across the country.
- Harsh treatment of one application, the ICO, on one platform is seen as a slam on all crypto platforms. It isn’t.
- Any government involvement, especially the Chinese and US governments, is something to watch (and maybe fear)
At the time of this writing, much of the related price drop has recovered but it pays to keep this in mind. Ethereum, its ERC-20 tokens, and ICOs are in multiple government’s crosshairs at the moment and this could happen again. A drop in Bitcoin’s price in sympathy could mean both a trading opportunity and a buying opportunity for HODLers.