No preface; we’ll jump straight to the point: many reasons influence token prices. And when we say many reasons, we mean it, and it’s essential to address them all separately. Let’s start with the complicated relationships between cryptocurrencies and the government. Complicated and sometimes abusive.
The stages of Bitcoin acceptance by the government can be described like this: ignoring, laughing at, underestimating, getting angry at, and suppressing. Some countries choose a Buddhist way of acceptance, like El Salvator, and Georgia made bitcoin a legal tender (and we know that Bitcoin is a locomotive amount of cryptocurrencies, where it goes, others follow). After this, Bitcoin lost 17% of its price, dropping from 46 thousand to 42 ( does anyone even remember those numbers?).
“When Wall Street turns cautious, the first thing that gets sold is bitcoin,” said Edward Moya, senior market analyst at Onada. “There was tremendous momentum leading up to El Salvador adopting bitcoin, but then you have the market jitters, which are exaggerating bitcoin’s price moves.”
From a long-term perspective, it’s too early to conclude if it was a good or a wrong decision; we are still watching and learning from their mistake (if it fails) or victory (If it doesn’t) but hard to ignore the fact that first world countries are not happy about today’s web3 world – if you can’t regulate crypto transactions, you can’t control it and that was the whole point.
But you probably aren’t interested in small countries like El Salvator. You want big players like…China.
Well, we have a lot to say here, because no one hates Cryptocurrencies as badly as China. From 2013 to 2021, China tried to apply new harsh measures six times.
In September 2021, the People’s Bank of China blocked all crypto transactions to prevent capital flight from the country. This was a real problem because, between 2019 and 2020, more than $50 billion worth of cryptocurrency left East Asia, presumably from China. The government even restricted the purchase of no more than $50,000 of crypto annually.
You may think it would tank the crypto market, but it didn’t happen. It may be explained by the fact that 70% of Bitcoin volume is held by long-term crypto-investors who are hardly surprised by new restrictions and because the crypto market doesn’t need China that much, to be honest. But we’ll see how the USA reacts, at least for now; we’ve been promised not to ban cryptocurrencies.
We don’t know which restrictions are coming. Next, we assume that if regulations are highly restrictive, they may – and probably will – negatively affect crypto prices. On the other hand, it may start a new wave of more conservative crypto Investors who weren’t ready to put their money in such a new form of currency and will be willing to do it with a more accurate trade record. And it will benefit the price. But one thing is sure – new government features drive token prices.
