China’s crackdown on crypto could backfire, leading to more decentralization, says executive

Key Takeaways:

• An executive reported an outflow of funds from Huobi and toward decentralized exchanges.
• Chinese government might have triggered the opposite effect to the desired one.
• Regulatory scrutiny continues in the US as well.

YEREVAN (CoinChapter.com) – One of the primary problems that governments (specifically the People’s Republic of China) could have with the crypto market is its decentralized and “uncontrollable” nature. China squeezed all things crypto out of the country, banning cryptocurrency exchanges (like Huobi Global) and shutting down mining farms.

However, an interesting incentive started to play out after funds left Huobi, a centralized exchange founded in China. The said funds flocked to decentralized exchanges (DEXs) like Uniswap (UNI), which could strengthen the decentralized nature of the industry.

More decentralization?

Ki Young Ju, the CEO of the crypto analytical platform CryptoQuant, posted a statistic on Wednesday, that clearly shows a spike in outflow transactions from Huobi, which closed its doors for mainland China accounts.

The analyst reported, that users moved their Ethereum (ETH), as well as stablecoins and DEX tokens towards “exchanges like Uniswap”.

Mr. Young Ju posted graphs to support his claim. They reflect the outflow of UNI, Stablecoins, and ETH respectively. The analysis also noted the irony of the fact that China’s harsh regulation to abolish decentralized finance backfired.

In hindsight, China’s latest move to ban cryptocurrency transactions in any form is no surprise. People’s Bank of China has been skeptical of the notion of digital and decentralized finance, as it poses a “threat to the sovereignty of the State”. Earlier, in June, the government also shut down several Bitcoin mining farms in the Southwest.

It is noteworthy, that China was responsible for over 65% of all BTC mining at the time. However, the statistic above shows that the general trust towards DEXs didn’t subside.

China is not the only country doubling down on the crypto market. In the US, the Securities and Exchange Commission (SEC) has paid increasingly more attention to crypto exchanges and DEXs in particular.

Also read: Bitcoin holds above $40K as China FUD prompts regional investors to ‘long’ crypto.

Regulations and crypto

The SEC put Uniswap under the microscope, as the largest DEX. Coinbase also got the short end of the stick with their lending program. Moreover, the latter took an “adversarial” approach towards the situation, spilling their discontent on Twitter. Other exchanges like FTX and Kraken seem more “understanding” of the SEC’s demands.

Marco Santori, the Chief Legal Officer of another crypto exchange Kraken, commented on the increased governmental scrutiny.

You’re living in a fantasy world, if you don’t think this industry is going to face heavier, more wall-street-like regulation from governments in the US and abroad. Kraken has been practical about that future. We know it’s coming and we want to craft a safe and sane regulatory environment.

said the CLO

Meanwhile, President Biden nominated Saule Omarova, an anti-crypto-leaning public policy adviser, as a Comptroller of the Currency. The Comptroller nominee already voiced her opinion on the cryptocurrency sector. She asserted that it benefiting mainly the “dysfunctional financial system” that already exists.

While some experts suggest that investor protection laws are necessary for the sector, decentralized exchanges take the first regulatory punch. Ki Young Ju argues that the regulators could miss the target instead and strengthen DEXs, as it seemed to happen with Huobi. Time will tell if the assumption was right.

Also read: Binance Coin (BNB) soars over 10% on diminishing China ban FUD