Bitcoin Dropped After China FUD—Analyst Explains Why It's a Nonissue

The price of Bitcoin (BTC) declined significantly in the past 48 hours following a culmination of negative developments. Mainly, there were three key factors that likely contributed to the falling of the BTC price.

The primary factor was the Chinese police seizing $4.2 billion in cryptocurrencies involved in a fraudulent operation. Others included OKEx unfreezing funds and the U.S. Treasury reportedly moving to regulate self-hosted crypto wallets.

But, David Puell, a Bitcoin market analyst, said the seized Bitcoin by the Chinese police were likely already sold. If the BTC was sold before, then it would not place any additional selling pressure on BTC in the future.

Bitcoin Seized by the Chinese Police Most Likely Sold Already, Worst is Over

Researchers at Ergo have been tracking the movement of the funds seized by the Chinese police for over a year. On-chain movements suggest that the BTC has already been sold.

Puell said that prominent on-chain researchers also confirmed the seized BTC were likely sold throughout the past year. He wrote:

“So here's the deal with all the PlusToken news we've been seeing recently in the crypto media. Thing is, tho it's just being reported now after the Chinese government put out official balances, Ergo blew this story open for the on-chain community over a year ago. As far as these ‘official’ sources say, the Bitcoin was simply seized and kept as part of China's national treasury. My take is that most of that Bitcoin has already been sold in very special circumstances.”

The initial reporting about the Chinese police confiscating 194,775 BTC, which is around 1% of BTC’s circulating supply, led to uncertainty in the market. 

But, now that more details have emerged and the seizure would not likely place heightened selling pressure on BTC, it is less relevant.

The U.S. Treasury’s Potential Regulation of Non-Custodial Wallets Remains a Concern.

In the medium term, the U.S. Treasury reportedly planning regulation on self-hosted crypto wallets still remains a concern. Coinbase CEO Brian Armstrong wrote on November 26:

“Last week we heard rumors that the U.S. Treasury and Secretary Mnuchin were planning to rush out some new regulation regarding self-hosted crypto wallets before the end of his term. I'm concerned that this would have unintended side effects, and wanted to share those concerns.”

If the regulation gets into practice, Armstrong noted that it might require exchanges to verify the identity of self-hosted wallets linking to exchanges. For instance, if a self-hosted wallet was to send funds to an exchange, the exchange would have to record the identity of the owner of the wallet.

This would cause many problems because it is difficult to record the identities of non-custodial wallets. Armstrong pinpointed that users would simply not want to provide more information for privacy reasons.

He said:

“Finally, many recipients (in the U.S. or abroad) who value their financial privacy, may simply not want to upload more identifying documents to various companies, which could be hacked or stolen.”

Due to the many issues that would arise with such a complex piece of legislation, industry executives remain skeptical that this would get approved.