Why Are Tokens Like Conflux (CFX) Rising?
Bitcoin lingers around $24,400 as Asia begins its trading day, down 1.6% in the past 24 hours. Ether has also experienced a slight correction, down 2.3% to $1,661.
Some of the “China coins” that rallied in the last week are also seeing a slight correction. Conflux (CFX), which has risen a staggering 485% in the past week, is down 4.7% on the day.
Gareth Soloway, Chief Market Strategist at Verified Investing, says the China narrative continues to be what attracts new bitcoin buyers.
“The big question is, despite interest rates going up and the dollar gaining strength, is there a catalyst that could push it over [$25,000]?”, he said during an interview on CoinDesk TV. “I think this narrative from Hong Kong can be something that helps.”
Soloway points to the 200 Weekly Moving Average as $25,000, which creates a strong resistance level with some headwinds.
“If we can break through $25,000 and get above that level, it’s a straight shot to $30,000,” he said.
That number is important because in 2021, he says, $30,000 was the lowest midpoint for the year. Prices fell from an April 2021 peak of $60,000 to $30,000 in late July, before rising back to around $69,000 in November.
“If we can retrace our steps and get back above $30,000, that would solidify that the lows are in for crypto,” he said. “I still think there are some jittery issues out there that the market needs to work out, but $30,000 being recaptured would put that to rest.”
Any token that is China related is currently going to the moon.
The ‘China narrative’ has been used to sell the next bull market.
But what exactly is this narrative?
Some of it is new, some of it is old. And some of it is more hype than substance.
Hong Kong and retail crypto traders
Hong Kong’s Securities and Futures Commission (SFC) is starting a consultation process for licensing crypto exchanges to serve retail investors. The SFC spent the last few years working on a consultation plan for professional (accredited) investors, which will go live on 1 June.
CoinDesk has asked Tether, Circle and Paxos if they would be interested in applying to be regulated under Hong Kong’s proposed stablecoin regime – so far, none have responded.
Don’t expect super leveraged crypto degeneracy when this launches. Regulators talk about things like “approved tokens” and “risk profile”. This is probably going to be a controlled, quiet walled garden of crypto.
Crypto is already widely available in China
Officials from China’s Liaison Office are apparently interested in Hong Kong’s progress with crypto, and have reportedly visited conferences and meetings in the city.
Some say this is a blessing, and China can study Hong Kong’s approach to crypto much like it learned from Hong Kong about open markets.
Still, there is no shortage of crypto available in China, through domestic payment rails.
Both OKX and Binance offer active OTC crypto markets for USDT, ether, bitcoin and other major cryptos. Payment is made via WeChat or a domestic bank transfer.
Anyone who wants crypto in China already has it.
Conflux and blockchain SIMs
Part of Conflux’s surge has been attributed to the announcement that it is working with China Telecom to build blockchain-based SIM cards, complete with all the Web3 terminology to get people excited like metaverse and proof of work.
But Blockchain SIM cards are nothing new. This is not China Telecom’s first attempt at it.
Back in 2018, China Telecom started exploring blockchain technology. In 2019, China Telecom started presenting the idea of a blockchain SIM with today’s buzzwords: internet of value, internet of things, 5G. A deck announcing the technology from 2020 talked about how digital accounts can help carriers reconcile billings.
A China Telecom spokesperson did not respond to a request for more technical details by press time.
Around the same time, Verizon won a patent for a blockchain-based SIM card it called vSIM. Verizon’s exact approach didn’t win out, and what it described has become the eSIM.
It is also important to remember that the Conflux that operates in China is not the same Conflux that you access with the CFX token.
The version of Conflux that has been funded by various provincial governments in China, such as Hunan and Shanghai’s city governments, does not have a token and uses a made-in-China encryption protocol. The same team is behind it and the technology is mostly the same, but China’s version of the chain doesn’t touch the global version.
Tony Ling, a China-based partner at Byzantine Capital, calls Conflux a “one country, two systems” blockchain, noting that the chain and performance are strong, but development has been limited due to domestic policy compliance.
“It has no [cryptocurrency] in China, it may be somewhat different from traditional public chains, he said. “Conflux is the only public chain recognized by the government of China.”
What is old is new again
It is difficult to pinpoint the catalyst for China’s crypto boom.
Hong Kong allowing retail crypto is a long way off. Authorities there are only in the consultation stage, and even when it launches, it’s going to be a controlled environment.
That said, crypto is already widely available in China, albeit through gray channels such as OTC desks. But it’s as easy as using a virtual private network to access Binance or OKX and then complete a transaction with WeChat Pay.
Conflux has been around for a while. Blockchain SIMs are not a new idea and have yet to take off.
Maybe it’s just the economy? China’s “home team” symbols are rising because the stock market is up.
Craig Erlam, a senior market analyst at OANDA, outlined this thesis in a previous interview with CoinDesk.
“The bullish case for the Chinese economy remains solid, and the likely release of stimulus over the next couple of months as it picks up may exaggerate that,” he told CoinDesk in an email. “Domestic demand is going to be the cornerstone of the economic recovery, and policymakers seem poised to unleash it to its full potential.”
The Hang Seng Index has risen 4% over the past six months as the market looks forward to China’s post-Covid reopening and the return of domestic consumption.
Time to see how strong the correlation with crypto is.
BNB, the initial token of the Binance-initiated blockchain network BNB Chain, is losing ground against bitcoin (BTC) in the wake of regulatory action against Binance-branded dollar-pegged stablecoin BUSD. Bitwise Asset Management President Teddy Fusaro shared his analysis. Additionally, Custodia Bank founder and CEO Caitlin Long discussed the state of US crypto regulation. And, Tribe Capital Managing Partner Boris Revsin explained how venture capital firms are investing in the wake of FTX.
