China in a Bitcoin Bull Shop

Posted on December 5, 2013

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CNY-ban

The news all over the radar this morning is that China is stopping banks from handling Bitcoin, effectively shifting the risk onto private citizens. The last few hours have seen price bounces like a Slinky on caffeine and an empty stomach. But will this bite or boost the network currency?

The volatility is to be expected. It’s clear that there are a lot of shifts going on in China right now – everything from massive growth, obviously, to demographic policy and global finance links. They’ve been wanting the dependency on the Dollar to topple for a while now, and it’s no coincidence that Bitcoin’s huge rally came just as the US parties were playing chicken with each other.

China is in a precarious situation – massive growth, but at an international tipping point. Play it right and it can lead – economically – for the next 50 years. Get it wrong and there’ll probably be a war. (Maybe Britain can pick up the pandas.)

In the middle, there’s Bitcoin. Nation States know that currencies have power – and China knows that ceding power to a global currency is a double-edged sword. (The same reason why countries have detached themselves from gold, but still hold gold reserves…)

On the one hand, Bitcoin offers a way out from the US Dollar. On the other hand, it puts up resistance to the Chinese Yuan. Right now, both countries are keen to keep their currency-power thankyouverymuch.

This quote from the Bloomberg article sums it up:

“The concern is that it interferes with normal monetary policy operation,” said Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong. “It represents an unofficial leakage to the current monetary system and trades globally.

Bitcoin is an outside interference. It is inherently a disruptive technology that replaces manual decision-making processes with binary code. And the fact that China are taking it seriously enough to regulate it (not ban it, note) means Bitcoin – or value-based global protocols, perhaps, but very specifically Bitcoin right now – is a major player now.

What does it mean for China? It means they’ll publicly separate themselves from it. The old rules that employ national currencies are still very much in play, and have far more influence than a fairly unproven technology. But they’ll leave the door open for Bitcoin as an alternative route to go after the Dollar. You may have noticed – China is good at tech.

What does it mean for Bitcoin? It means it’s being taken seriously. And while the price may be dropping, all it really means in this case is that the scope for risky speculation got narrower. Volatility for a currency actually makes it harder to sell as a “usable” form of payment, so all in all I think this is a move which works in Bitcoin’s favour. Let China regulate its economy. And let Bitcoin regulate itself.

But the “interface” between national currencies and global ones – between the Dollar/Yuan and Bitcoin/Gold – will continue to evolve, especially with the technical nature of Bitcoin. As I said back in March, economic cypherwar is heating up.

Right now, I’m happy to hold.

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