China Bans Crypto, Provides Buying Opportunity

It’s Official, China Bans Bitcoin

In news leaked early today China has made it official, Bitcoin is banned within China. According to Coindesk documents and statements from exchange officials there has been a verbal instruction to cease operations by September 15th, effecting and immediate shut down. The reason, these exchanges are operating foreign exchange businesses domestically without formal licensing or regulation.

The document outlines how the exchanges are to wind down operations with detailed instructions for reporting and banking relationships. While a shock this news is not a surprise. The move has been coming for several weeks and the reason for recent selling in the crypto markets. The correction began earlier this month with a ban on ICO’s. This ban curtailed funding of start-ups using blockchain technology and required all such businesses to return funds to owners. The reason here was simple as well, the businesses were using a illegal and unregulated method of business funding.

Two of China’s largest and oldest BTC exchanges have already announced plans to shut down. BTCC and ViaBIT are winding down operations with the admonishment to traders, get out quickly. The result, a 50% correction in the cryptocurrency market. Ethereum was hit hardest as it is the basis for most ICO’s. It fell 25% in the first few days following the ICO ban and has extended that loss to near 50%. Bitcoin, the worlds leading digital currency and primary means of exchange, fell only 20% in the first days and is down only 38% from its peak in the wake of official closure in China.

How Low Can Crypto Go?

To be honest, the cryptocurrency market could go to zero but that is far from likely. The cryptocurrency market is well established, the use of blockchain technology gaining mainstream acceptance everday. Add to that the amount of time leading up to the Friday, September 15th announcement and it becomes likely that most of the wild selling is already over. What come next will be more orderly as China’s regulators seize control of operations during the wind-down. What traders need to remember is that the correction is forced selling, the market did not want it, once China is out longer term trends can resume.

Looking at the charts, and in particular Litecoin, there are signs of over extension and the possibility of a major relief rally. The coin was down more than 65% at its low and has begun to show signs a bottom may have been reached. Looking at the daily chart we can see a market that has made a sharp pull back, retreat to a significant longer term support level, is off-the-charts oversold and forming (not yet confirmed) a large and potentially strong doji like candle.

The hourly chart shows similar. The coin hit its long term support level in the hour that China announced the total ban on cryptocurrency trading. It also formed a wicked strong doji candle on super high volume confirming support at this level. The doji itself is a tombstone and indicative of the “death of the bear market”. . . you know, sell the rumor and buy the reality. The following candle is another bullish confirmation, also on high volume. Short term traders should expect to see volatility on the lower time frames, longer term traders should consider this a buying op the way I am. You can find our list of recommended Bitcoin brokers here.