Bitcoin is an innovation China cannot say “no” to.
That’s the message of a Global Times editorial, which praises the digital currency. “There’s an increasing belief that just saying no to bitcoin won’t be the eventual solution to the cryptocurrency issue,” writes Xiao Xin, author of the editorial. “A more fundamental approach would be to embrace the new technology without putting the country’s financial system at stake.”
This approach is a signal that Beijing is getting ready to tighten regulations around the digital currency, as US, Japan and Korea have done,rather than ban it altogether.
And that could be bullish for Bitcoin prices, which have been all over in recent months. Regulating Bitcoin is certainly better than an outright ban.
The Global Times’ editorial comes months after Beijing banned Initial Coin Offerings (ICOs) and cryptocurrency trading, crushing Bitcoin and other major cryptocurrencies—see table.
That was just the beginning rather than the end of growing efforts by big governments around the world to turn Bitcoin back into what itonce was — an exotic currency for the tech savvy and romantic radicals, as was discussed in a previous piece here.
To be fair Chinese and other governments, big and small, have a couple of good reasons to regulate the process of creating and exchanging cryptocurrencies. Like the protection of the public from market manipulation, and the ensuring of financial stability.
That’s something governments have been doing for years with conventional financial products and instruments. Why not with cryptocurrencies?
But shutting off ICOs and cryptocurrency exchanges altogether, as China did, reaches beyond traditional regulation. It questions the very legitimacy of Bitcoin as a currency.
Why? Because it undermines the monopoly of government and the banking system on creating money and credit.
China more than any other country wants to have firm control of its banking system, and allocate credit according to a political agenda. This means that a competing currency like Bitcoin would threaten its political system. Why not crush it sooner than later?
But crushing Bitcoin could also crush innovation, something China badly needs as it prepares to make the Great Leap Forward from copying foreign technology to developing its own.
Besides, banning Bitcoin trade in China won’t stop Bitcoin. It will just leave the country behind in the digital currency revolution. As Xiao Xin puts it, “fencing off bitcoin exchanges can’t effectively end Bitcoin trade, and fears of a Bitcoin bubble will leave China behind in the digital currency revolution.”
And the digital revolution is what can help China make the transition from an emerging to a developed country.
That’s why Beijing seems to be having second thoughts on banning Bitcoin. I wouldn’t be surprised if the ban is lifted in the near future.