CoinDesk Learn Editor Ollie Leech explains Elon Musk's recent comments on crypto regulation and the fallout from China's most recent crypto crackdown.

Video Transcript

- We have the head of the OCC saying that, hey, we need to do something about crypto regulation. Crypto companies need to take it upon themselves in order to act so we don't face a potential financial crisis. And then, you have Elon Musk saying that the government needs to take a hands-off approach. What do you make of all this?

OLLIE LEECH: Yeah, I mean, it's a long-standing debate in crypto, you know? Are regulations good, bad for the industry? Do they help legitimize markets, stifle innovation? You know, I think both things can be right. And I understand where Elon's coming from, but you know, regulation does slow down the advancement of the technology and its adoption. But then, again, you know, the counterargument is that it also provides consumer protections. It, you know, prevents the presence of fraudulent platforms. It makes the industry more attractive to new investors.

You know, licensing regulations for example, you know, these things, you know, can be seen to, you know, create barriers of entry for new businesses and kind of stifle entrepreneurial people. But at the same time, you know, it weeds out those Fortune companies, you know? And ensures that people are serious, and that companies that are serious about offering beneficial services to the market do so.

So I mean, there's good arguments for both. Do I think-- you know, do I think Elon is right in saying there should be zero regulatory oversight? I think that's a little bit extreme, to be honest. You know, you only have to look back at, you know, the 2017 ICO boom, and you see the huge amount of fraud that took place then, to understand that there needs to be like a little bit in the space, at least.

Do I think, you know, going back to OCC's comments, you know, about, you know, Bitcoin can't be used for anything to spend, I think that's completely false. You can buy thousands of things with Bitcoin now. Yes, its volatility makes it not the best sort of medium of exchange, but there are services and products that you can buy with it right now.

So yeah, it's just the fact--

- Ollie?

OLLIE LEECH: --that it's such a good investment. Ooh? Go ahead?

- I want to switch gears on something else that Musk talked about, which is energy demand in China, and this potential-- it's an allegation. I can't think of the right word. But they're saying that random power outages-- because demand for power is higher than expected-- could be attributed to Bitcoin and crypto mining. Is that-- really? That much power is being drawn to mine cryptocurrencies?

OLLIE LEECH: I mean, it takes an awful lot of energy to mine cryptocurrency. I haven't seen that report personally, but I mean, you know, a lot of it now is renewable. I think it accounts for less than a percent, or maybe just 1% of America's entire energy output. So I mean, you know, yes, it's big, but it's globally distributed. No single country is supporting the entire network.

You know, comparing-- you know, we have to look at the broader financial system as well. That uses a huge amount of energy-- probably, you know, times more, you know, x times more than Bitcoin currently uses. So if it's causing outages, yeah, it depends if it's localized in a certain area that can't handle that. And mining, now, is being redistributed because of the clampdown in China. It's forced, you know, miners other elsewhere.

But yeah, I don't know. I haven't seen the reports myself.

- Ollie, what about the crackdown in China? Because it's interesting. When you take a look at the price of Bitcoin, over the last five days, it's off just around 3 and 1/2%. It's holding above $41,000. So it was under a bit of pressure after we got that news out of China, but we didn't necessarily see the massive sell-off that maybe some would have expected to see. Why do you think that is?

OLLIE LEECH: Yeah, a number of reasons. I think, you know, a lot of people are confused now. They don't really understand, you know, what it means when China bans crypto anymore.

You know, we've seen this headline so many times now for the last couple of years. You know, particularly, you know, more recently, we saw it in May, and that didn't really have a huge impact on the market. We're seeing it again, and prices dropped-- you know, Bitcoin, I think, dropped around $2,000 when that announcement came out on the 24th. But it's bouncing back again.

I just think people are kind of over that news now, you know? The industry is now starting to move away from its dependency in China, particularly mining there. So yeah, it just doesn't have the same grip on the market that it used to have-- you know, go back to 2017 when it really used to, you know, send Bitcoin and the rest of the market tumbling.

Yeah, and it's just-- this just kind of seems to be the final nail in the coffin for crypto in China at the moment. I can't see, you know, how they can really push on from here. They've now virtually banned all forms of crypto trading, and now, even the people themselves cannot buy, sell, or trade cryptocurrencies. And even people can't work for foreign exchanges.

- How would you explain-- it seems as if Bitcoin itself is caught in this range-- can't get back above $43,000, won't fall below $41,250. What's it gonna take either to bust out to the upside or the downside? Is there anything in the past that we can look for to indicate what possibly could happen?

OLLIE LEECH: Yeah, there's like a couple of thoughts, really. Like there's still a lot of liquidity down around that $30,000 mark, maybe even a little bit lower. There might be people waiting for it to drop all the way down there, eat up all that liquidity, and push on. We just don't really know right now.

That $50,000 psychological level is-- you know, that's still a huge part that we need to break through. And it's just, you know, there hasn't really been a great deal of positive news coming out for Bitcoin specifically. We're still seeing a lot of attention on DeFi and NFTs, a lot of exciting innovation in that area. But you know, right now, Bitcoin is-- there's not really an awful lot going on.

We're still waiting for an ETF, you know? We're still waiting for a positive outcome from this whole broker definition of the infrastructure bill and things like that. We're still waiting to see how that's going to shape the market going forward. So yeah, I think we're just waiting for something Bitcoin-specific that will just push things forward, and we just don't have that yet.