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China Paving Way for First Blockchain ETF

China May Soon Have Its First Blockchain Exchange-Traded Fund

  • Chinese firm Penghua Fund has filed an application for a blockchain ETF in the country
  • Shenzhen Stock Exchange released its Blockchain 50 Index to track stocks of listed firms in the blockchain industry

China just made way for its first ever blockchain-backed exchange-traded fund (ETF). A Shenzhen-based funds management firm, Penghua Fund, filed an application, dubbed Penghua Shenzhen Stocks Blockchain ETF, which was submitted to the China Securities Regulatory Commission (CSRC), the main regulator of the securities industry of the country.

The Shanghai Securities Journal (SSJ) reported that on the approval of the application, the company will be the first one to launch Blockchain ETF in the country, which will help in tracking the operations of publicly listed stocks from blockchain-based companies. The SSJ also stated that if the proposal gets approved, it will pave way for other firms to file their own proposals for blockchain-based ETFs. The news report stated:

“The industry believes that with the landing of such fund products in the future, it will provide investors with a new way to share the development dividend of the blockchain industry.”

On the same day as the blockchain ETF proposal, the Shenzhen Stock Exchange released its Blockchain 50 Index which tracks stocks of top 50 firms by market cap in the blockchain industry. The Blockchain Index 50 includes companies such as Wholeasy, Ping An Bank and Zixin Pharmaceutical, as of now.

Although China continues to stick to its anti-crypto stance, President Xi’s endorsement of blockchain has led many Chinese firms to become part of the blockchain space. Over 500 blockchain projects have already been registered by the Cyber Administration of China. Meanwhile, the People’s Bank of China (PBoC) is also working to test the digital yuan.

 

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China’s Shenzhen Stock Exchange Launches Index of 50 Blockchain Companies

  • 8th largest stock exchange in the world launches index of 50 blockchain companies

The Shenzhen Stock Exchange (SSE) is the 4th largest stock exchange in Asia and the 8th largest in the world with a market capitalization of USD 3.12 trillion, and also one of only two stock exchanges operating independently in China. The SSE has announced that they are launching an index of 50 blockchain companies.

The SSE blockchain index will be updated twice a year, and only the 50 highest-ranking blockchain companies according to average daily market value over the last six months will be included in the index.

The SSE did their due diligence and made sure that every company listed in this new index is actually using blockchain technology rather than just capitalizing on the blockchain hype in China. For example, in March 2018 the SSE suspended the trading of Lifesense in order to investigate if the company’s claims of running a blockchain laboratory were true.

This is not the first time a major stock exchange has launched a blockchain company index. The NASDAQ stock exchange launched the Defix index in September, which includes companies that focus on blockchain and decentralized technology, and in October NASDAQ launched the CIX100 index which was created by the crypto oriented company Cryptoindex.

 

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China Global Bitcoin Hash Rate Share At New High of 66%

  • China now controls 2/3 of the total Bitcoin mining hash rate

A report from CoinShares has found that China’s share of the global Bitcoin mining hash rate has increased to 66%, which is the highest level recorded since CoinShares began publishing these reports in 2017. Further, over 50% of the global Bitcoin mining hash rate is concentrated in a single province, Sichuan, which is located in southwest China and has abundant hydroelectric power resources.

Other mining hotspots in China include Xinjiang and Inner Mongolia. CoinShares’ speculates that China’s hash rate has achieved new heights due to the widespread deployment of top of the line mining rigs, and this especially makes sense since the top Bitcoin mining manufacturers in the world are located in China, including Bitmain, Canaan, and MicroBT.

Notably, the government of China was close to banning cryptocurrency mining, but decided not to last month, at least for now. It could be argued that having so much of Bitcoin’s hash rate located in a country that does not favor Bitcoin could be a centralization concern. Theoretically, the Chinese government could seize the Bitcoin mining operations across the country and take over the Bitcoin network if they desired to.

As for the other 34% of the global Bitcoin mining hash rate, it is concentrated in the United States, Russia, and Kazakhstan.

 

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China Readies Another Crackdown On The Crypto Industry

The Shanghai Internet Finance Rectification Agency and the Shanghai Bureau of the People’s Bank of China has released an official notice that regulators in each district must investigate local crypto trading activity and report their findings by November 22. This appears to be the prelude to another crypto crackdown in China.

Apparently crypto trading and speculation in China has been increasing, especially after President Xi Jinping praised blockchain technology earlier this month.

One specific example is that Binance launched peer to peer trading that accepts Chinese Yuan (CNY) via bank wires, Alipay, or WeChat. Soon after that Binance’s account on Weibo, the biggest social media site in China, was banned. Also, Tron’s Weibo account was banned a day later. In general, Weibo now censors all posts that mention crypto trading.

Regulators will be on the lookout for any new companies that are organizing virtual currency trading activity or initial coin offerings (ICOs) that are accessible to Chinese residents. Notably, China already banned fiat to crypto trading and ICOs, so this operation is essentially a sweep to ensure that no one is breaking the law.

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Guangzhou to dedicate $150 million to fund “outstanding blockchain projects”

Chinese City Guangzhou to Invest $150 Million in Blockchain Projects

Guangzhou to dedicate 0 million to fund “outstanding blockchain projects”

Dovey Wan of Primitive Ventures tweeted in a thread about the government of Guangzhou of the People’s Republic of China funding RMB 1 billion (some USD 150 million) dedicated to “blockchain subsidy” for “outstanding blockchain projects”.  According to Wan, the project will sponsor two distinct blockchain subsidies per year. These two projects can be either in the public domain or federal based.

Breaking up the usage of funds, Wan said that USD 1.5 million will be invested in a public chain while the federal chain will receive about USD 500,000. About 20 blockchain service companies will all receive a few hundred thousand dollars each and the rest of the money will be used for training in local universities.

An interesting revelation was the compulsion of the public chain to be “without token”. This refers to a blockchain-based system without the usage of cryptocurrencies. While a few regulation issues are prevented by this, the concept of blockchain without token is flawed considering the absence of a model which rewards for miners and nodes of the network which consequently leads to lesser adoption.

Guangzhou’s move to investing in blockchain subsidies comes after Chinese President Xi Jinping endorsement of blockchain. As reported earlier, President Xi Jinping’s endorsement of blockchain technology stirred a resurgence of interest in the domain. The increased Chinese interest in blockchain technology is spurring renewed hype in the industry which had cooled down a bit for a while now.

 

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Chinese Tech Stocks Surge Post President Xi's Blockchain Endorsement

Chinese Tech Stocks Surge Post President Xi’s Blockchain Endorsement

Chinese Tech Stocks Surge Post President Xi's Blockchain Endorsement

President Xi Jinping’s endorsement of blockchain technology stirred a resurgence of interest in the country’s cryptocurrencies. As reported by BitcoinNews.com, the Chinese government standing committee, at the 12th national People’s Congress passed new laws to regulate cryptography which in turn will lead to the development of cryptocurrency and blockchain in the country. The increased Chinese interest in blockchain technology is spurring renewed hype in the industry which had cooled down a bit for a while now.

As reported by Bloomberg, amid the massive gains of more than 60 tech shares on Monday, Zhejiang Huamei Holding Co Ltd and Julong Co Ltd were the standout performers in Shanghai and Shenzhen. Moreover, there was a 30% rally in Bitcoin. A blockchain company, Xunlei Limited, also saw a 107% hike in stocks apart from the other blockchain companies such as baby-food producer Beingmate Co. and selfie-app developer Meitu Inc.

The Shenzhen Information Technology Index leaped by 5.1% on Monday, outdoing its 2-month performance. Blockchain-based companies such as Hundsun Technologies Inc, Easysight Supply Chain Management Co, and YGSOFT Inc also surpassed expectations.

Naturally, the stirred market sentiment is doing wonders for these companies. Li Shiyu, fund manager at Guangdong Xiaoyu Investment Management Co. said:

“Most of these companies, especially those that are just beginning to state their connection with blockchain today, are trying to take advantage of the hype. It shows how much excitement can be triggered by something stressed as a priority by the top man himself.”

Investors are also persuading other firms to jump on the blockchain bandwagon to make the most out of the situation. The entire setting is advantageous for the growth of the existing blockchain-related startups and is perhaps paving way for the birth of new ones.

 

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Chinese Capital Controls Turn the Heat on for Bitcoin

Chinese Capital Controls Have Likely Been An Influence On This Year's Bitcoin Rally

Bitcoin has rallied from USD 3,000 in February to nearly USD 12,000 at the time of this writing in early August, and Chinese capital controls may be an important factor in this year’s Bitcoin rally.

China has a long history of capital controls, which essentially means that Chinese citizens are not allowed to freely move their money out of the country. For example, in 2017 China lowered the international ATM withdraw limit for citizens to USD 15,000 per year, and the cap for sending money internationally is USD 50,000 per year.

The reasoning behind capital controls is that if money is kept in China then the Chinese economy will be stronger, although this is perhaps debatable since capital controls are detrimental to free trade. Another possible reason is capital controls make it difficult for Chinese citizens to leave the country permanently since most of their hard-earned money would be stuck in the bank.

China-Hong Kong money funnel’s Bitcoin correlation

Already in 2014, it was reported that Chinese citizens were using state-backed UnionPay bank cards to funnel money into Macau, from which point, Chinese citizens can withdraw the money and send the money abroad. This is due to the fact that Macau has some sovereignty and different laws than the rest of China.

Another hotspot for circumventing capital controls is Hong Kong, another territory in China similar to Macau in terms of sovereignty. Apparently, Chinese citizens overpay Hong Kong merchants for goods or services, and then for a fee that money can be withdrawn for international use. This activity actually shows up in the data for Chinese imports from Hong Kong.

Chinese imports from Hong Kong versus Bitcoin’s price with an 18-month lag. Chart courtesy of ZeroHedge

There is a striking correlation between Bitcoin’s price and Chinese imports from Hong Kong, when an 18-month lag is used for Bitcoin’s price. This indicates that when Chinese imports from Hong Kong spike, then Bitcoin begins to rally several months later. This correlation is noted for both the rally that peaked in late 2017 when Bitcoin hit USD 20,000, and for the ongoing bull run in 2019 which has brought Bitcoin as high as USD 13,800.

Specifically, Chinese imports from Hong Kong began to surge in late 2018, and that surge accelerated at the beginning of 2019. Shortly afterward in February 2019, Bitcoin’s price began to rise from its bear market low, and by April 2019, a full-fledged Bitcoin bull run was underway.

It is perhaps not surprising that Chinese capital outflows can have such a big impact on Bitcoin, since if only a small amount of the USD 22 trillion of deposits in China is sent out of the country via Bitcoin it would cause a significant Bitcoin rally, and this may be what is happening.

Trade wars and intensification of Chinese capital controls

The trade war between the United States and China has caused the Chinese government to become even more strict with their capital controls, and this may explain the recent surge in Chinese imports to Hong Kong. In May 2019, it was reported that Chinese citizens could not withdraw even small amounts of US dollars from Chinese banks, even if they are within their yearly quota. Another example is that a Chinese citizen was told they were too old, and denied the capability to send US Dollars abroad. This is somewhat shocking considering that this citizen was a banker, and had previously supported the capital controls.

It can be speculated that the recent crackdown on US dollar availability in China is happening because the Chinese government is trying to ensure that citizens use the Chinese yuan, in order to increase its value, instead of selling them off for US dollars. However, despite the laws, some citizens may be using the Hong Kong method to get their money into US dollars, especially since the yuan is losing value relative to the dollar.

Bitcoin’s good at circumventing capital controls

The link between Chinese citizens circumventing capital controls and Bitcoin’s market behavior can be explained by the fundamental characteristics of Bitcoin itself. Bitcoin can be sent anywhere in the world instantly, and Bitcoin is inherently pseudo-anonymous. Bitcoin can even be fully anonymous if a VPN or Tor is used, giving Chinese citizens peace of mind that the illegal capital outflows will not be easily traced back to them. Compare this to fiat payment methods which require full identification information. Fiat payment methods are not useful for circumventing capital controls since they could easily be linked back to Chinese citizens, possibly leading to arrest.

Indeed, there are numerous options available in Hong Kong to buy Bitcoin, further solidifying the connection between imports from China to Hong Kong and Bitcoin market behavior. Essentially, Chinese citizens overpay merchants in Hong Kong for goods and services, the merchant gives the citizen the cash in Hong Kong, then that cash can be used to buy Bitcoin, and sent anywhere in the world.

…during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%…

— Donald J. Trump (@realDonaldTrump) August 1, 2019

This data and theory indicate that it is important to monitor the news coming out of China, especially in regards to the trade war with the United States, since the increase in Chinese capital outflows since the trade war began is likely a factor in this year’s Bitcoin rally. If the trade war intensifies more, that will perhaps lead to additional gains in value for Bitcoin. Indeed, the price of Bitcoin has surged from USD 10,000 to USD 12,000 since President Trump of the United States announced additional tariffs of 10% on USD 300 billion of Chinese goods.

 

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Munich Researchers Call for Higher Renewables Impact on Bitcoin Mining

Munich Researchers Call for Higher Renewables Impact on Bitcoin Mining Copy

The crypto mining ecological debate is never too far from the news, and a German think tank at the Technical University of Munich (TUM) has just added its own slant to the argument suggesting that renewables are the recommended way of lowering the Bitcoin footprint.

This in itself is not news as it has now been accepted in the industry that renewable energy will be the direction for existing and future mining enterprises to take moving forward, but the Munich group have added their own new statistics to the debate.

TUM concluded after their research that Bitcoin causes around 22 megatons in CO2 annually, comparable, the unit suggested, to cities such as Hamburg or Las Vegas. They founded their results on the IPO filings of hardware manufacturers and the IP addresses of Bitcoin miners. The research was arguably the most thorough of its kind with the team using a step by step process in order to gain conclusive data on what exactly the carbon footprint may be given current mining statistics.

Christian Stoll, who conducts research at both the TUM and the Massachusetts Institute of Technology (MIT), maintained that, “To improve the ecological balance, one possibility might be to link more mining farms to additional renewable generating capacity.” He added:

“Naturally there are bigger factors contributing to climate change. However, the carbon footprint is big enough to make it worth discussing the possibility of regulating cryptocurrency mining in regions where power generation is especially carbon-intensive.”

A 2018 report released by UK based CoinShares detailing the origins of global energy resources used in Bitcoin mining proposed that 77.6% of worldwide Bitcoin mining is now conducted through the use of renewable energy resources.

The outcome is that companies mining Bitcoin are moving to “curtailment” areas to lower their production costs resulting in extremely high renewable powered mining statistics: 95% of Chinese mining through renewable energy and 80% of total Chinese mining (or 48% of global mining) occurring in Sichuan.

 

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IMF Talks Up Fintech’s Disruptive Potential

lagarde, IMF, fintech

Reuters reports that the International Monetary Fund (IMF) Managing Director Christine Lagarde has issued warnings over the increasing impact and presence of global tech giants who are using big data, artificial intelligence (AI) and fintech, possibly disrupting the global financial system.

Lagarde, in her address to the G20 finance leaders meeting in Fukuoka, Japan, specifically pointed to the rapid development of financial technology (fintech) resulting in cheaper payment and settlement systems for emerging economies where traditional banking networks are bare.

She said that this development could force policymakers the world over to reconsider the way they see banking and financial settlements should be regulated and made to comply:

“A significant disruption to the financial landscape is likely to come from the big tech firms, who will use their enormous customer bases and deep pockets to offer financial products based on big data and artificial intelligence.”

She admitted that financial markets would benefit from innovation but they could centralize and make vulnerable a small system controlled by a few tech giants: “This presents a unique systemic challenge to financial stability and efficiency, and one I hope we can touch on during the G20, and address in a cooperative and consistent fashion.”

She also pointed to China as a glaring example of fintech’s various benefits and shortcomings, showing how tech growth there has been extremely successful

Lagarde said China presents an example of the trade-off between benefits and challenges posed by financial technology, where millions now benefit from access to financial products and high-quality jobs, but where only two firms now control over 90% of the mobile payments market.

The IMF has had its past run-ins with the global community with its views and stance on fintech and emerging technology such as blockchain and crypto. It has its own quasi-crypto called Learning Coin but has warned the Republic of Marshall Islands over plans to launch their own crypto and told Malta there were significant risks of terrorism with blockchain.

 

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US-China Trade War Could See Bitcoin at All-Time High in 6 Months

US China Trade War Could See Bitcoin At All time High in 6 Months

With analysts putting reputations on the line once more regarding the march of Bitcoin, one analyst has gone one further suggesting Bitcoin could surpass its high of 2017 in only six months.

“I believe Bitcoin has the potential to hit USD 25,000 by the end of 2019 or early 2020,” claims prominent Bitcoin analyst Oliver Isaacs, adding:

“There are multiple drivers behind the recent resurgence. There are geopolitical, technological and regulatory drivers. The net effect of the trade war between the US and China has led to a sudden interest in bitcoin as a hedge on investments.”

China’s central bank holds about USD 2 trillion out of a total of USD 3 trillion of foreign exchange reserves causing some analysts to suggest that China could dump the bonds, throwing the US economy into recession due to the rising cost in US borrowing if this scenario unfolds.

Billionaire investor Tim Draper sees Bitcoin reaching USD 250,000 by 2023, but he has continued to back the currency to the hilt with unshakable conviction over a period of years. “It’s a better currency, it’s decentralized, open [and] transparent – everybody knows what happens on the blockchain,” he continues to maintain.

The Transaction Amount to Active Addresses Ratio (TAAR) a model which measures how much each active address spends in transactions per day on average indicates that Bitcoin’s upward price movement is set to continue, given sporadic corrections. TAAR based on a six-year model also shows an increase in Bitcoin’s network activity not seen in several months regardless of its connection to prices.

Currently, the drop in Bitcoin’s price over the past days is a sign of buyer exhaustion on-chain analyst and Adaptive Fund partner Willy Woo sees organic buyers waiting for the next big buy-in:

“This a quant fund driven short squeeze devoid of any true investor volume… I’m awaiting this exchange driven pump to blow off, a proper retrace, and only then do I think real investor flows will come in and drive the true organic bull market.”

 

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