Cryptocurrency markets fell this week as a string of bad news pummeled markets fresh off of new highs.
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Let’s break down what happened, and why it shouldn’t impact the long-term trajectory for cryptos.
**It began on Monday, when news circulated that China is reportedly looking to reign-in domestic mining operations.
**Chinese mining operations currently account for nearly 79% of all bitcoin mining globally.
As reported by the Financial Times, a multi-agency task force issued a statement in early January directing local governments to pressure mining firms to reduce operations.
In response to the directive, Chinese miners have reportedly begun looking to relocate operations abroad — in locations with cheap energy and cool climates, which is beneficial for cooling electronic components.
China has a history of attempting to intervene in cryptocurrency markets...
In late 2017, the government moved to ban fundraising via initial coin offering and subsequently ordered cryptocurrency exchanges to cease operations
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Separately, in a release on Thursday, Reuters reported that South Korean officials plan to ban cryptocurrency trading.
Of course, South Korean enthusiasm for cryptocurrency investments has exploded in recent months.
**The east Asian country currently accounts for nearly 20% of all bitcoin trading globally.
**So the report rattled cryptocurrency markets, sending prices of ethereum and bitcoin down by more than 10%.
Now, the report was later discredited.
Officials from other branches of the government clarified that no immediate ban was being considered.
And markets responded positively to the clarification.
But the uncertainty continued to weigh on markets by late Thursday afternoon.
A Dilemma for Regulators
**This won’t be the last time regulators will attempt to step in and police this market.
As this market continues to grow, the potential risk to the real economy grows more likely.
Regulators will increasingly be tempted to protect their own interests and safeguard their citizens.
However, regulators have a dilemma…
They can try to ban cryptocurrencies completely, or they can work to develop solutions to accept the changing market landscape.
I expect them to try both.
**But as we’ve seen with alcohol prohibition, the war on drugs, and digital music piracy the government has a terrible track record enforcing bans on goods and services which people want.
Ultimately, China’s approach allows the government to signal their intention to influence markets without strict regulation.
But this will likely embolden the anti-government ideology which already pervades these products.
So while many believe that unfriendly regulatory actions are a risk to cryptocurrencies, it appears that regulators may be adopting a more tactful approach.
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The financial world and the worldwide governments will do what they can to bash the crypto space. As long as the existing system is still intact, the crypto market will continue to be under attack.