China declares all crypto-currency transactions illegal


Below is a snippet from the above article.

China’s central bank has announced that all transactions of crypto-currencies are illegal, effectively banning digital tokens such as Bitcoin.

“Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China said, warning it “seriously endangers the safety of people’s assets.”



BITCOIN FUTURES DAILY: Bitcoin is down on the news. Breaking below $40,000 would imply a secondary top at $53,125 and promote more sideways consolidation. Ultimately, a breakdown below $28,000 is needed to confirm a crypto bear market. Until then, prices are merely consolidating. 


Market Update: The Evergrade saga could lead to a widespread contagion and real estate prices collapsing in China. Chinese citizens have the majority of their savings in real estate. This is a horrible situation that could lead to massive losses. 


Deleveraging: The Chinese economy is highly leveraged. If it begins to deleverage, the government may have to step in to cover losses and maintain order. If they fail to respond accordingly, we could see panic or a sharp selloff in most assets. 


Crypto Crash: One scenario I’m considering is a potential liquidity shock in crypto exchanges. Let me explain: if we see a panic deleveraging (now or sometime down the road), I see the potential for liquidity to dry up in the crypto exchanges. If buy orders dry up while investors are rushing to the exits – crypto prices could temporarily plummet. How low could they go? I have no idea, but theoretically, some could drop to the lowest buy order on the books. A panic of this magnitude would last just a few seconds before the exchanges go down. 

Though the crypto crash described above is unlikely, it is not impossible. If it were to happen, it would most likely occur over the weekend (when traditional banks and funding sources are closed). Think about it; trading volume is already low on weekends. That, combined with a potential deleveraging event, could trigger margin calls at a time when traders (max leveraged) and unable to assess funds. That could lead to forced selling.

I’ve placed Good Til Canceled limit orders for pennies on the dollar through CoinBase Pro to take advantage of a potential crash. The orders will just sit there hoping to get filled. My favorite protocol remains Cardano (ADA). 



Final thoughts, if crypto transactions are illegal in China, and there is a rush to liquidity – investors may switch back to gold to maintain their purchasing power. If that occurs, precious metals could launch from these levels.