Should You Buy This Skyrocketing Chinese Crypto?

One of the world’s top cryptocurrencies this year is most likely one you’ve never heard of. Conflux (CRYPTO: CFX) is up an incredible 1,800% this year and is now close to breaking into the top 50 cryptos by market capitalization list. Trading at a price of just $0.45, Conflux now ranks as the 51st largest crypto, with a total market capitalization of $1.1 billion.

So why are investors going crazy over Conflux? After all, Conflux is not a metaverse crypto, and it is not a hot new AI crypto token. While Conflux may not be tapping into one of those hot tech trends, it offers a similar type of massive growth opportunity: China. In short, Conflux is a red-hot Chinese blockchain project that comes with a unique set of risks and rewards.

The Chinese Blockchain Opportunity

The best way to think of Conflux is that it is China’s answer Ethereum (ETH -0.40%), and that makes it valuable for developers and technologists who want to build the blockchain economy in China. Conflux was originally launched at Beijing’s Tsinghua University, which is often referred to as “China’s MIT.” As a result, there are many very smart people behind this project, including Dr. Andrew Yao, who won the Turing Award, the computing world’s version of the Nobel Prize, back in 2000. The Conflux team claims it has a blockchain consensus mechanism. called Tree-Graph which is far more powerful and efficient than other consensus mechanisms, such as the proof-of-stake mechanism Ethereum uses.

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Image source: Getty Images.

However, the real reason Conflux is skyrocketing off the charts is that it has very quickly become a “public blockchain” in China. In practical terms, that means it has the Chinese government’s blessing, and that’s very important. Conflux can continue to develop without undue government intervention, and it can partner with top Chinese technology companies. Example: Conflux just signed an agreement with China Telecom for blockchain-based SIM cards. And it also signed an agreement with Xiaohongshu, or Little Red Book, the “Instagram of China,” for non-fungible tokens (NFTs).

So it’s easy to see why there’s so much momentum and excitement around Conflux. This may only be a once-a-decade investment opportunity. You can invest in a Chinese blockchain leader at a time when no one has heard of it and when it is trading for less than $1. Even better, Conflux says it’s going to be a bridge between East and West, enabling collaboration and interoperability of blockchain projects worldwide. So the potential growth opportunity for Conflux is not just limited to China.

Geopolitical and regulatory risk

However, the source of this crypto’s greatest reward is also the source of its greatest risk. It’s impossible to talk about Conflux without also talking about China, and that’s a problem. Remember, we have a small crisis brewing in Taiwan, and if that situation ever escalates into a full-blown war, it could be game over for all China-related investment opportunities.

Also, there’s something about Chinese tech companies that the US government doesn’t like. Look at the example of Huawei Technologies, a top Chinese 5G telecom company, which the US government accuses of being a front for the Chinese Communist Party. Huawei is now banned from the US. Or what about TikTok, the popular Chinese social media app that members of Congress are now trying to ban in the US?

If you decide to invest in Conflux, regulatory risk is something you need to consider. Right now, Conflux is not on the radar of US regulators, however Binance, the cryptocurrency exchange founded in China, is. From my perspective, the writing is on the wall for any Chinese crypto or blockchain project trying to expand into the US market.

Is Conflux a buy?

So the big positive for Conflux is “access to China’s blockchain growth”. But the big negative is the potential geopolitical and regulatory risk. From my perspective, the potential upside is simply not worth the risk of the value of your asset dropping to zero if regulators decide to go after it.

Admittedly, the math for investing in Conflux in the short term is certainly tempting. What other cryptos are capable of giving tenfold returns in a matter of months? But it is important to remember the long-term story here. For a serious amount of money, I’d rather invest in Ethereum and put my full faith in Vitalik Buterin and his team to stay one step ahead of any new blockchain innovations coming out of China.