This column discussed last week the intensifying Chinese crackdown on crypto assets which is viewed as the main reason for the sharp decline in Bitcoin from the April peak.
This is, clearly, a big deal since the message sent out is that China does not want its citizens owning crypto assets period.
This is in part because of the clear ability to use so-called stablecoins like Tether to circumnavigate the closed capital account.
It is also, more importantly, because China does not want any competition when it launches the digital renminbi nationally, most likely before the end of this year.
This will give the central government total transparency on its citizens’ savings and spending habits.
Certainly, the decentralised aspect of blockchain technology, which is so appealing to libertarians opposed to fiat currencies as state monopolies, is the complete antithesis of China’s collectivist system.
There is also the issue of China’s capital closed capital account.
The PRC, which on 1 July celebrated its 100th anniversary, understands this all too well. This s is certainly a far more important issue to Beijing than the carbon generating aspects of Bitcoin mining.
If Bitcoin was a stock, the technical damage sustained by the recent crash from the peak of US$64,870 in mid-April to a low of US$28,824 on 22 June would suggest that it will take considerable time to recover from the damage done.
Certainly, the chart has been looking horrible for several weeks which is why traders will have wanted to sell rallies.
Thus, Bitcoin suffered a so-called ‘’death cross’’ when Bitcoin’s 50-day moving average falling below the 200-day moving average on 19 June.
What Do Western Government’s Think of Bitcoin?
Still, Bitcoin is not a stock and the critical issue remains what the regulatory attitude will be to crypto in the Western world, most particularly in America.
On that point, Securities and Exchange Commission (SEC) chairman Gary Gensler announced in late May that the SEC will come up with a comprehensive regulatory framework on the crypto asset class next year.
That suggests at a minimum that Bitcoin and other crypto assets are not going to be banned outright.
Still, it also means, contrary to earlier hopes, that there is unlikely to be any approval in the near term of a US-listed Bitcoin ETF.
So far 13 applications to launch a Bitcoin ETF have been lodged with the SEC.
Gensler, who in the recent past has been giving lectures on crypto at the Massachusetts Institute of Technology, seemingly views blockchain as a new technology with tremendous growth potential.
As a result, this writer’s assumption is that he probably wants to come up with a definitive regulatory roadmap.
That certainly makes eminent sense.
It would also ultimately be very positive since Bitcoin or other crypto assets can only really fulfill their network potential, in terms of mass adoption, if they become part of the system.
But the tricky point is that the technology, by seemingly creating a parallel universe to conventional commercial banking, poses not only a disruptive threat to the financial services industry but also potentially to central banks and governments as well, particularly the government with the world’s reserve currency.
Still, given the current fast deteriorating state of US-China relations, Beijing’s latest aggressive moves on crypto have increased the odds, in this writer’s view, that the regulatory response in America will turn out to be much more accommodating if only to draw a contrast with China’s authoritarian model.
It also does not make sense to ban outright a technology that has such commercial potential.
There is also the potential for the existing leading financial players, like major US investment banks, to coopt the technology for their own benefit.
US-China Relations in Focus
Meanwhile, on the subject of deteriorating US-China relations, there continues to be a growing risk of a further escalation.
This is likely to be triggered by the mounting focus in Washington on the origins of the pandemic, in terms of the Wuhan lab leak theory, and related charges of a cover-up.
On this point, it has now become respectable for the mainstream media to discuss this issue whereas in the spring of 2020 it was dismissed as the ramblings of right-wing conspiracy theorists and of course Donald Trump.
The article which brought this issue back into the mainstream, and which contains the most detailed analysis of the pros and cons of the lab leak theory this writer has seen is referenced here (see Bulletin of the Atomic Scientists article: “The origin of COVID: Did people or nature open Pandora’s box at Wuhan?” by former New York Times science writer Nicholas Wade, 5 May 2021).
This is a story that likely has much further to run.
On this point, Joe Biden’s articulate National Security Advisor, Jake Sullivan, gave an interview on Fox TV late last month during which he stated that “China will face ‘isolation in the international community’ if it does not cooperate with further probes into the origin of the pandemic” (see Fox News article: “China will face international ‘isolation’ if no cooperation on coronavirus origin probe: Jake Sullivan”, 20 June 2021).
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