China and U.S. Policies Could Ignite Crypto Market Boom or Bust

The world’s biggest economies, like China and the United States, are shaking things up with measures that could have a massive impact on the crypto industry. China’s economy is going through a bit of a rough patch, and in a bid to kickstart growth, the government is considering some serious fiscal stimulus.

More: China Updates AML Laws, Classifies Crypto as Money Laundering

Zhang Ming, the deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said China might boost its special government bonds by a whopping $420 billion this year. This move comes after some less-than-stellar economic growth data, thanks to strict COVID-era restrictions.

Analysts believe that these measures might not just spark joy on the home front but could also shake up global cryptocurrency markets. Arthur Hayes, co-founder of BitMex, is betting that such steps could trigger a “crypto bull market.” Why? Because when investors see governments pulling out all the stops, they start thinking, “Hey, maybe it’s time to double down on digital assets!”

So, if China goes all in, we might see a surge in demand for cryptocurrencies, giving their prices a little boost.

China Tightens the Screws on Crypto Transactions

At the same time that China is pondering economic stimuli, it’s also turning up the heat on cryptocurrency transactions. In a recent announcement that’s sure to make crypto enthusiasts sweat a little, China’s Supreme People’s Court and Supreme People’s Procuratorate declared that transactions involving "virtual assets" could be treated as a form of money laundering. This new interpretation of the law throws a giant question mark over the legality of using cryptocurrencies in the country and tightens regulations on crypto transactions.

According to these new regulations, any transaction connected to criminal activity will be treated as money laundering. Now, while crypto transactions won’t automatically be labeled illegal, the heightened scrutiny on financial operations is likely to put the squeeze on crypto companies and users in China, forcing them to play by stricter rules and adopt extra precautionary measures.

Over on Reddit, the commentary was, shall we say, less than enthusiastic. Some users critiqued the idea that China is eager to keep a firm grip on financial flows and clamp down on the use of cryptocurrencies.

Unlike in the U.S., where the Patriot Act is waved around in the name of national security, China’s policies often focus on tighter control over its citizens and their finances. So, it’s a safe bet that the Chinese government will continue to keep a close watch on cryptocurrencies and won’t be rolling out the red carpet for widespread use anytime soon.

The Impact of the US Federal Reserve Policy

It's not just China's economic maneuvers shaking up the crypto sector — the U.S. Federal Reserve (Fed) is also plays a major role in the world of digital currencies. Lately, the buzz around potential interest rate cuts from the Fed has been sending ripples through the cryptocurrency markets. Investors are hanging on every word from the Fed, especially when it comes to possible changes in interest rates.

According to the minutes from the July meetings of the Federal Open Market Committee (FOMC), the Fed is sounding more dovish, hinting that rate cuts could be on the horizon. This has already stirred up the crypto markets, with traders betting big on a softer monetary policy. If the Fed does decide to lower rates, it could mean a fresh influx of capital into riskier assets, including cryptocurrencies, potentially pushing their prices up.

Related: Global Financial Shock: Market Downturn & Crypto Market Crash

The uncertainty surrounding the Fed’s policy decisions also brings risks. If the Fed doesn’t lower rates as investors are hoping, we could see a sudden downturn in the crypto markets, as many traders are banking on those rate cuts.

As much as we would like to think of cryptocurrencies as a new and independent financial industry, the reality is that the crypto ecosystem remains highly sensitive to the moves of major global economies. Investors and market participants would be wise to keep a close eye on what both China and the U.S. are up to, to better understand how these decisions might shape global cryptocurrency trends.

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