Can the U.S. Ban Crypto? Why a China Crypto Ban Has Investors Concerned

Last Updated on August 15, 2021

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Could the U.S. ban crypto? This question is weighing on the minds of a lot of nervous investors. Prominent financial advisors have noted that the United States is well behind the curve. Perhaps recognizing that, the U.S. Treasury has been regularly briefing the White House about the risks of crypto. 

But, while more eyes are on crypto these days — including companies being probed for potential illegal activity — there seems to be no sign of an impending crypto ban as a whole.

So why are investors in the United States so worried about the concept of a potential crypto ban? 

The Crypto Ban in China

The main reason many U.S. investors are extremely worried about a potential U.S. ban on crypto is the significant crypto ban in China, which was initiated in May and has gained legs since.

In this ban, financial institutions and payment companies were no longer permitted to offer any types of services related to crypto transactions. That includes trading, clearing, and settlement of crypto. The institutions cannot issue any type of financial product related to cryptocurrency, including savings accounts. This crypto ban was issued by three of China’s top financial industry regulation bodies: the National Internet Finance Association of China, the China Banking Association, and the Clearing Association of China.

For many in China, this wasn’t a surprise. Citing the instability and speculative nature of crypto, they have either banned or severely limited the trading of the currency for a few years now. In 2017, the country closed local cryptocurrency exchanges, which then accounted for 90% of bitcoin trading globally. 

China's Crypto Ban
In 2019, the People’s Bank of China cut off access to all cryptocurrency exchanges, both domestic and foreign. Photo credit: Shutterstock.com

Why the China Ban Concerns U.S. Investors

Obviously, this crypto ban had ripple effects globally, causing anxiety among investors in the United States where major payment and financial companies such as Paypal, Visa, and Venmo allow for the holding and trading of cryptocurrency. 

But the fear of a U.S. ban is not the only source of stateside investors’ anxiety. In fact, far from it. Another concern related to the China crypto ban is that it has seriously devalued the currency, creating an even more volatile picture for the world of crypto investing. 

On June 21, the price of crypto fell 8% in just 24 hours, going below $30,000 for the first time in months. That wiped a grand total of $300 billion in value from the cryptocurrency market, and seriously rattled the nerves of investors who are already rather anxious about the overall crypto situation.

There are a few reasons for this quick drop in the price of crypto. One is the regular volatility that occurs with crypto trading on any given day. Another reason was the recent crypto bans in China. But the biggest impetus for the drop that day was yet another Chinese ban on crypto: The Chinese government ordered the shutdown of crypto minus in the Sichuan province. That’s meaningful, as Sichuan is one of the largest crypto mining centers in China.

So, when it comes to the China crypto ban, the situation is getting more tense and restrictive. 

Crypto Has Momentum in the United States

It’s impossible to provide a yes-or-no answer to the question of whether the United States will institute a crypto ban. But here’s the likely answer — probably not. 

Crypto in the United States faces a messy scramble for greater scrutiny. And it will likely only see more regulations. 

But why? First, the crypto momentum in the United States has started, and it’s hard to stop. Many on Wall Street are enthusiastic (even if cautiously so) about the concept of Bitcoin investment. The Chicago Mercantile Exchange is actively trading Bitcoin derivatives. U.S. financial news networks are devoting more time to talk about ways to invest. And even the youngest investors are getting in on the crypto game.

If bitcoin were to be caught in a U.S. ban, it would likely have to be done in the interest of scam protection. And that potential legislation would likely focus on stopping the conversion of Bitcoin into dollars. That would mean a shift in the cryptocurrency market to other nations’ currency, which would potentially be bad for the U.S. dollar.

Potential Negatives of a U.S. Crypto Ban 

A crypto ban in the United States could also slow economic growth, and the pace of innovation that fuels it. While there are undoubtedly scams in the cryptocurrency system, it’s also filled with tech and financial innovators, housed in the United States and contributing to the U.S. economy. Those innovators could go elsewhere, and the economy could suffer.

Another reason that crypto won’t likely be banned is that, in a way, it’s a testament to the freedom of choice the U.S. offers. It’s independent from the mainstream market and can’t be manipulated by the government in the same way the stock market can. 

While Federal Reserve intervention in stocks is obviously important for many reasons — from general stability of the system to being an important hedge against inflation — a lot of investors want to go their own ways. They prefer to invest in something that’s not tied to the traditional rules of investing. And, as long as they’re willing to put up with the stated risks (and likely deal with increased regulations), there’s a very good chance they’ll continue to have the chance to do just that.