US gov’t report: China represents a major threat to bitcoin’s success
During last year’s bitcoin bull market, China was the burgeoning crypto-currency’s best friend. Today, the Chinese government, rather than its people, is among the greatest threats to the success of this alternative financial economy. So says a new report, “Bitcoin’s Uncertain Future in China” issued by the US government’s United States-China Economic and Security Review Commission (USCC).
The USCC report states plainly:
If Chinese regulators successfully prevent Chinese users from accessing bitcoin, the global bitcoin market will face continued price declines, significantly decreased trading volumes and threats to its legitimacy.
At its peak in Q4, Renminbi (RMB, China’s official currency)-denominated transactions made up nearly 60 percent of global trading volume, and the global price of bitcoin climbed in lock step with the RMB volume share. Lightspeed Venture Partners-backed BTC China became the world’s largest exchange by volume, and insatiable buying demand in the communist country helped drive the price of bitcoin up threefold in a matter of weeks (and 80-fold over a year’s time) to more than $1,200, nearly reaching parity with gold.
It was always a “playing with fire”-type situation, as I argued in November of last year in an article titled “Bitcoin, you have a China problem:”
But for a currency touted for its independence from government interference, the growing concentration of Chinese influence over this crypto-currency wealth creates a single point of failure for the system. The same would be true if you replaced China with any other country (assuming it could generate similar trading volumes), but the fact that it is the notoriously unpredictable China doesn’t inspire confidence…
If the world has learned anything over the last half century, it’s that modern China can be a manic and unforgiving patriarch, making rapid and unilateral policy decisions that often fly in the face of logic or the perceived greater good. It would be foolish to assume we can predict its future actions around bitcoin….
A bet on bitcoin is increasingly a bet on the predictability of the Chinese government and its highly unstable economy. It is a bet that the Chinese economy will perform poorly, capital controls will continue, and Beijing will remain tolerant of bitcoin. In other words, it’s a sucker’s bet.
Beginning in December, the People’s Bank of China (PBoC) began taking steps to limit bitcoin adoption within the country. The primary avenue of this attack has been to choke out the operations of Chinese bitcoin exchanges by prohibiting them from obtaining bank accounts or entering into payment processor relationships. In early February, BTC China and other exchanges were forced to stop accepting RMB-denominated deposits, effectively grinding the market to a halt. A subsequent loophole to this policy was then closed in March. Several smaller exchanges in the country have since ceased operations as of the end of April.
