June 8th, 2018

How did institutional bans affect crypto activities?

How did institutional bans affect crypto activities?

June 8th, 2018

Although the similar success and popularity in a particular industry has not been seen for a while, the ongoing trend of cryptocurrencies have faced a number of difficulties. The moments of sceptical voices public which gave the ground for particular stigmas as well as the reserved or even strict attitude from governmental institutions. While the former ones are harmful for overall opinion and decisions of potential investors, the latter negativities have a more direct impact on crypto community. Talking briefly, the laws which restrict or ban the activities related to digital money create a quite problematic framework which might end up in several different scenarios.

First of all, there are still more governments which applied severe regulations on the actions related to cryptocurrency projects than countries where related activities are banned by official laws. However, it should not become an obstacle to analyse potential reasons for complete bans and their consequence, as these steps taken by governmental institutions can make an impact on the situation of whole crypto community on a global scale.

As a consequence of governmental bans, the primary effect could be the overall decrease in cryptocurrency prices. It is pretty intuitive that the signal of danger, extensively expressed by governments worldwide, may contribute to the lack of trust within the society and investors. This results in common hesitation to invest or speculate what may lead to a shorter or longer decline of the certain market. In case of Bitcoin, this tendency could be perfectly spotted after the cryptocurrency ban in China in autumn 2017. Then, the price of main cryptocurrency unit decreased by almost 15%, causing the similar sequence of events regarding other types of digital money. Even though this downturn lasted for a really short period of time and was followed by the exceptional rise which concluded in the all-time record price of Bitcoin in the end of that year, it is safe to assume that the fear of investment, caused by radical steps of the government in China, simply ignited negative opinions regarding the future of cryptocurrencies and caused a temporary decline.

(Fluctuating price of Bitcoin after the ban in China, September – October 2017. Source: Coindesk)

 

What is more, the example of China demonstrated that the advent of bans from governmental institutions could conclude in the increase of crypto activities in the offshore countries. Overall, the process and idea are quite simple: while participating in activities within the offshore platform, numerous regulations and restrictions (usually relevant in most countries) can be overcome and not become a certain obstacle for potential profits. Therefore, after the introduction of forbidding laws in their home country, the Chinese crypto enthusiasts shifted their activities in the mentioned side markets. In the beginning, this loophole was not detected and further crypto activities occurred smoothly. However, in the beginning of 2018, even this step was restricted after the changes in law which resulted in a complete ban of cryptocurrencies. Basically, even the theoretical opportunity to participate in offshore exchanges was finally abolished through blocking all cryptocurrency-related foreign platforms. According to Cryptovest, the representatives of governmental institutions in China admitted that the first round of ban did not prevent further activities; hence, additional measures had to be implemented in order to reduce the so-called negative impact on economy.

Last, but not the least, the actions of governing bodies may encourage private businesses to consider precautionary tools regarding the influence of crypto activities. For instance, the ban of cryptocurrency ads released by the most popular websites and social media channels (including Google, Facebook and Twitter) could be indirectly associated with the governmental decisions. Officially the Internet giants, gaining support even from the representatives of crypto community, claimed that these bans were formed as the protection from potential scam, accompanied with the lack of regulations in crypto advertising. Given this reasoning, it would be possible that the roots of inspiration for these strict measurements could be affected by the soft power governmental institutions are holding. Paradoxically, in the situation which had to diminish cryptocurrencies through preventing the Internet users, some voices claimed that online bans will contribute to more creative approaches, thus making even more successful cryptocurrency advertising. For example, the crypto marketer Jeremy Epstein appreciated the actions of prominent online players on Twitter and shared the deeper insight on this issue.

(The post of Jeremy Epstein, source: https://twitter.com/jer979/status/979563858716217344)

 

All in all, as shown by recent stories in the world of crypto, the outcomes of governmental bans on the activities related to digital currencies may be quite contrasting. On one hand, such methods as the complete prohibition implemented in China or the abolishment of advertisements from the largest websites worldwide can indicate that crypto activities would experience hard times due to a smaller reach. On the other hand, tough times encourage to take up tough measures. The ability to find certain flaws in a radical legal framework of China and take advantage of it clearly proves the power and flexibility of decentralized financial systems. Also, the challenge for online-based marketers which was imposed by the Internet and could even become a new advertising trend and inspiration for other industries.