The animosity which was brewing between a country and an emerging financial technology is appearing to come to an end.
China is taking its first few steps towards recognizing Bitcoin, a non-sovereign asset, as a groundbreaking innovation. Asia’s richest economy slapped a banking ban on the emerging Bitcoin industry in late 2017, leading to the migration of thousands of young companies. The government feared that its people would use Bitcoin to circumvent capital control laws, launder money, run illegal crowdfunding programs, and facilitating every kind of illicit activity online, ranging from child pornography to drug trafficking.
One cannot blame the government for being precautionary. Bitcoin was not exactly acting as a groundbreaking technology back in its early days. Its seamless use in now-defunct darknet Silk Road, followed by a multi-million dollar hacking incident on Japanese exchange Mt Gox, left central bankers worried. China, in particular, saw Bitcoin as a threat to its people. In December 2013, it banned financial institutions from dealing with bitcoin transactions, a move that later shaped into a full-fledge ban of trading cryptocurrencies.
As China went ahead with its hate-relationship with bitcoin, the country meanwhile never shied away from borrowing the cryptocurrency’s underlying technology – the blockchain – to create a digital version of its official currency Yuan.
At the same time, China also remained host to more than 80 percent of mining companies – data centers that offer the computing power to run the bitcoin’s decentralized payment network. Nevertheless, the country’s State Administration of Foreign Exchange led by Pan Gongsheng announced in early 2018 that it would begin a crackdown on the regional bitcoin mining industry.
All in Hindsight
A string of new updates coming from China is now hinting that the country is taking a softer approach to Bitcoin. On October 25, President Xi Jinping endorsed the blockchain technology in a public address, stating that his regime would allocate about $2 billion in its research and development. The news sent the bitcoin price up by as much as 41.85 percent, showing how traders interpreted good news from China as a major bullish signal.
China did not just stop with Jinping’s blockchain endorsement. The coming weeks would see the country taking the necessary steps to strengthen its regional cryptocurrency industry. For instance, China’s National Development and Reform Commission left bitcoin mining out of its list of restricted activities, according to an announcement made on November 7.
The latest event that supports China’s softening stance on bitcoin is news coverage of a state-run newspaper. Xinhua on November 11 published an insightful editorial about Bitcoin, the first of its kind since the Chinese government imposed a blanket ban on cryptocurrency trading.
The article worked as a bitcoin-explainer but – yet – it largely focused on the cryptocurrency’s negative aspects, including price volatility and rumored centralization of the bitcoin mining. Nevertheless, Xinhua ended up putting bitcoin on the front page of a newspaper that is read by millions of people across China.
Advertising Digital Yuan or Genuine Concerns for Bitcoin?
Decrypt reported that Xinhua’s article is criticizing bitcoin so it could lay the groundwork for China’s Digital Currency Electronic Payment (DCEP) program. Matthew Graham, the chief executive of Beijing-based Sino Global Capital who brought the bitcoin article to light, said the Jinping regime is attempting to “shape the narrative surrounding this powerful and strategic technology.”
“They can’t ignore Bitcoin, but they don’t really want to encourage it either,” he said. “They want to slowly push and pull people in the direction of their own vision. What is that vision? State-controlled DCEP in conjunction with blockchain technology throughout the economy.”
Nevertheless, others believe China is opening up to the potential of bitcoin especially against the ongoing macroeconomic meltdown that is leading global central banks to inject fresh fiat supply into the market and increase inflation. Bitcoin as a non-correlated asset proposes to be a hedge against the inflation crisis, as the world has seen in the cases of Venezuela, Argentina, Zimbabwe, and others.
It so appears that China has not banned Bitcoin from its mind. The state is clearly attempting to separate the cryptocurrency from its very-own digital yuan initiative. But with Xinhua terming Bitcoin as the only working app of blockchain, it leaves traders in China with optimism that the President Jinping’s regime would go less-harder on Bitcoin.
The decision to not prohibit Bitcoin mining also points in the same direction. China at best is confused about its prospects towards cryptocurrency, especially when it sets out to challenge the global monopoly of the US dollar by projecting yuan as an alternative.
China is not about to lift the bitcoin trading ban – at least for now. But the state is laying a very bullish foundation for the cryptocurrency.