What happened?

China’s economic planning agency, the National Development Reform Commission, has recently included crypto-mining to the list of industries it plans to eliminate because they waste resources and pollute the environment. What does it mean for the cryptocurrency market?

Why is it important?

In general

The decisions of Chinese officials regarding cryptocurrencies have made a big impact on the market before. The nation’s ban of ICO in September 2017 was followed by the multifold soaring of Bitcoin price.

It’s not surprising why China is this important for the crypto world. After all, 70% of Bitcoin mining and 90% of trading is taking place in this Asian country. Mining is not making Bitcoins out of the thin air as some people still think. It is a process of processing and validating cryptocurrency transactions for which miners get a reward in the form of tokens. This process is very energy-consuming. Chinese authorities are also worried about financial bubbles and frauds which are related to cryptocurrencies.

The trick is that electricity, labor, and the presence of local chipmaking factories make China an ideal place for mining. However, the reality is that if China forbids mining, the odds that this process stops are not so high. According to a more likely scenario, mining pools will simply find another residence.

For investors

The NDRC has started a period of public consultations that will last until May 7. During this time, it will accept opinions about the matter at hand. If it then decides to ban mining, the activity will switch elsewhere and become less centralized. Mining costs will increase from the current levels of $5,000-$6,000. This, in turn, may pull Bitcoin price to the upside if, of course, there’s adequate demand as the commodity price should normally be 2-2.5-times higher than the cost of production.

For traders

BTC/USD got the support of the 200-week MA in December and January and made a leap up last week. Resistance is located at $5,690 (50-week MA), $6,000, and $6,400 (100-week MA). Support levels are at $5,000 and $4,200.

The weekly chart of Bitcoin vs US dollar
Bitcoin vs US dollar, weekly chart

Cryptocurrencies can be traded as CFDs at eToro.