The crypto market suffered another blow in the past week after the People’s Bank of China (PBoC) announced that all crypto activities in the country are illegal. This new restriction also barred foreign exchanges from operating in the country. As a result, most cryptocurrencies, led by Bitcoin (BTC/USD) and Ethereum (ETH/USD), suffered double-digit losses as organizations offering crypto services pulled out of China.
While China’s latest crackdown dealt the crypto market a blow, experts claim investors are overplaying its importance. One such expert is Stéphane Ouellette, the CEO of FRNT, a crypto-focused institutional capital markets platform, who points out that China effectively declared crypto illegal in 2013 by prohibiting banks from processing crypto transactions.
Ouellette added that crypto markets tend to decline and flow more than traditional markets. As such, financial media increases investor concerns by amplifying the impact of negative developments in the nascent market.
He further noted that,
This China news might look really nasty, but people forget that the financial media explains every move. A new investor might think a new announcement is material when it isn’t.
Downplaying the significance of BTC’s recent double-digit plunge, Ouellette said people should not overthink the drop, seeing as the BTC market suffers such selloffs at least 75 times in a year.
People should understand the risks associated with investing in crypto
As crypto investors continue waiting for BTC to bottom out, the cryptocurrency has been quite unpredictable, with the floor range between mid-May and August being between $29,000 and $39,000. However, the market recovered, and $40,000 seems to be the flagship cryptocurrency’s new floor. Nonetheless, Ouellette emphasizes that prices could crash and breach this level, especially if the stock market performs poorly.
According to Tendayi Kapfidze, the Chief Economist at US Bank, cryptocurrencies are highly correlated with the stock market. He added that the direction of the stock market spurs a similar trend in the crypto market, but the effects are in most cases amplified. With this in mind, Kapfidze urged investors to understand the risk they are taking by investing in the burgeoning asset class.
Ouellette suggested that investors carefully examine any high-priced coins that offer little or no utility. He added that such coins are highly speculative and have no current use despite their developers claiming they live on the blockchain and execute specific functions. According to him, some of these tokens have valuations exceeding $1 billion, and they can easily slip to zero.
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