There has been a lot of panic in the markets these past two weeks as rumors have spread that the Chinese government is making moves to ban bitcoin. This culminated in a huge sell off yesterday that saw a low price of $339.80 on Bitstamp. That’s the lowest bitcoin has been priced at in the last 5 months. It’s worth noting that all of this has happened with no official word out of the People’s Bank of China, China’s central bank authority. It has all been rumors and speculation, screenshotted Weibo posts (Chinese version of Facebook) , vague Chinese press releases by smaller crypto currency exchanges such as btctrade , and speculation based on the removal of deposit options from Chinese exchanges such as BTCChina .
It is not clear what the Chinese Government’s intention is at the moment, but they will inevitably move to restrict cryptocurrency transactions in the future. One of the government’s key sources of power over their people is their tight monetary controls. The Chinese use their absolute control over their economy to both control their own people and to affect other countries on an international basis.
Bitcoin and other cryptocurrencies threaten the status quo because they give people the freedom to use their money as they see fit. It is a form of money not controlled by any specific government or corporation, but rather by the people, for the people. It is a disruptive technology, and it has always been expected that cryptos would receive significant resistance from governments around the world.
Bitcoin was designed to be decentralized, resilient, and anti-fragile; it won’t be easy for any country to outright ban it. What they can do, is make it really difficult to purchase cryptos and they can go after companies located in their borders that deal in bitcoin related business. What they can’t do is ban mining, ban transactions, or confiscate funds. It is theorized that almost 20% of the total Bitcoin network’s hashing power is located in China. Those miners receive newly mined coins on a daily basis and there is no way for the Chinese government to enforce a ban on cash transactions for those coins. If China moves to ban online exchanges, then the exchanges will move to other countries and a thriving black market will be born. BTC-E, our favorite anonymous exchange run out of Bulgaria, has just opened up CNY deposits through an Australian bank account. It will probably get shut off by the Chinese government eventually but the point is that if there is money to be made, someone will make it possible for the Chinese to buy and sell cryptos. If there is a will there is a way.
TL;DR: Bitcoin isn’t dead. China hasn’t banned bitcoin. China can’t ban bitcoin if they wanted to. Short term we are in for a bumpy ride but long term prospects remain strong.
Disclaimer: This post is intended solely to provide information. As I have no knowledge of individual circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing or selling anything mentioned or recommended.