Bitcoin’s price fell after China’s crackdown of the cryptocurrency.
Edward Smith/Getty ImagesBitcoin’s founders wanted a decentralized system impervious to government control. Now they are facing their ultimate test: The People’s Republic of China.
Bitcoin’s price plunged 16%, then rallied most of the way back following a June 21 declaration from the Chinese central bank that cryptocurrencies “disrupt financial orders, breed criminal activity, and seriously infringe property safety.” Among other evils. That followed a sit-down where the country’s banks and payments systems promised to do better squeezing out crypto business.
Cracking down doesn’t mean stamping out, though. China first barred financial institutions from handling crypto in 2013, when it decided that Bitcoin lacked “real meaning.” In 2017 it closed crypto exchanges and outlawed “initial coin offerings,” sales of stock compensated by Bitcoin. It broadened the banking ban this May, aiming to quash leveraged speculation as Bitcoin’s price soared.
“China’s position has been very clear and consistent from the beginning,” says Yan Xiao, project lead on digital trade at the World Economic Forum.
Also consistent has been crypto’s rising popularity with the Chinese population. “China has never gone so far as to make individuals holding and trading cryptocurrency illegal,” says Claire Wilson, a partner at Hong Kong-based consultant Holland & Marie. “They don’t want to criminalize something they can’t enforce.”
Chinese authoritarianism makes alternative currencies all the more attractive to its citizens. Strict capital controls make it hard to diversify wealth the usual way, with offshore accounts or real estate. Lack of rights against the state creates insecurity around domestic assets.
Until that changes, authorities will keep playing whack-a-mole with crypto. “All the banks promised not to support crypto-related transactions, but it’s hard to examine every transaction,” says Winston Ma, a global regulation scholar at New York University School of Law.
Beijing should have an easier time with the second front of its crackdown, reining in Bitcoin “mining,” which entails amassing supercomputers to solve fiendishly complex equations and being rewarded with fresh currency. The energy involved has run afoul of China’s carbon-reduction targets, and power shortages that have shut down real factories this year. Producers could exploit loopholes here too, though, Ma explains. Mining operations could mask themselves within “digital infrastructure” projects, which the government is keen to promote.
Bitcoin is one area where China does not want to lead the world. It does anyway because its governance rather proves the founders’ point that a peer-to-peer currency can counterbalance national fiat. China’s experience also shows that states can quarantine Bitcoin. The cryptocurrency lives on, but Chinese still can’t use it to buy a house, a plane ticket, or even lunch. The state’s lockdown will only tighten.“If they take out the banks, the individual on the street may think twice about owning Bitcoin,” consultant Wilson says.
The Free World, for all its differences with China, will likely treat cryptocurrency with similar caution, all the more so as other economies follow China’s lead in rolling out legal digital tender. “As countries launch their sovereign digital currencies, cryptos will be the losers,” Winston Ma predicts.
One more constituency is emerging to support constricted cryptocurrencies: the market. At least the institutional investors whose embrace of Bitcoin has tripled its price over the past year.
“The early endorsers were anarchists, but the Wall Street investors advocate regulation,” the WEF’s Xiao says.
Guess who will win that argument.
June 25, 2021 at 03:15PM
https://www.barrons.com/articles/why-it-will-be-hard-for-china-to-clamp-down-on-bitcoin-51624608900
Why It Will Be Hard for China to Clamp Down on Bitcoin - Barron's
https://news.google.com/search?q=hard&hl=en-US&gl=US&ceid=US:en
No comments:
Post a Comment