The China Crackdown has forced an unprecedented quest for survival, and the crypto community has proven to be resilient in that challenge: will this crackdown be a positive force on DeFi?
Dawn Fitzpatrick, Soros Fund Management Chief Executive Officer (CEO) and Chief Investment Officer has stated for a Bloomberg interview that Bitcoin (BTC) is mainstream at this point more than it is a hedge against inflation, and this is largely attributed to the Chinese government imposing sanctions and causing a crackdown on crypto.
While China has made it impossible for Bitcoin (BTC) miners to continue their operations, a mass movement of companies withdrawing from China has occurred, including Bitman and the decision to refrain from selling mining hardware in the country. Being looked at from a massive global adaptation, Bitcoin (BTC) has earned its mainstream title by rebounding impressively from the surge in mining difficulty and all the complications risen since the crackdown.
Because of the crackdown, China has suffered the outflow of billions of dollars in funds that were unregulated, where the joint amount from both unregulated international exchange platforms as well as regulated domestic ones amounted to an overwhelming total of $28.3 billion in the first six months of this year, which exceeds cash outflow in 2020 by x1.6.
This amount was reduced by the amendment of policies on crypto regulation from the People’s Bank of China, which cut 40% off the outflows from unregulated exchanges.
Nonetheless, regulations do not exactly make it easier for these transactions to be traced. A Padiun Technology representative stated that KYC authentication is rendered null and void due to the excessive creation of faux identities by cybercriminals, and the difficulty of identifying suspects is inherently increasing.
On another note, Arthur Cheong, the crypto manager, supported that decentralized finance (DeFi) can reap the benefits of the crackdown: “Centralized cryptocurrency companies [exchanges] are currently getting curtailed and restricted… Investors will look for decentralized alternatives, which would benefit the entire DeFi ecosystem.”
Nonetheless, while the benefits from the crackdown become apparent, DeFi has obstacles to overcome yet. Hester Peirce, the Securities and Exchange Commission (SEC) Commissioner shone a light on the fact that for DeFi to fit into a regulatory framework, the only solution is complete decentralization: “if you want to make a case that you’re something different than the CeFi or TradFi system, then you have to show that you’re doing something radically different, which, from my perspective, requires decentralization.”
Furthermore, apart from China, Russia is enforcing restrictions on private crypto where the investors incur regulatory obstacles there as well. Nonetheless, the filling of the cracks even in this case can be facilitated by DeFi, irrespective of the challenges.
Cheong supports that in a matter of 5 years the market share will be dominated by decentralized finance (DeFi) instead of traditional finance.
While the opportunities of DeFi are vast, there are still uncertainties in the US regarding its potential, especially the perceived challenges of DeFi that hinder proper user and investor protection according to Gensler.