China, Bitcoin, and the Blockchain Boom

Last week, the Chinese government in effect banned anti-blockchain sentiment in China by announcing their pivot to blockchain dominance. (You’ll notice the focus was on blockchain and not bitcoin.) This sent prices of Asian-based cryptocurrencies like Ontology, NEO and Tron skyrocketing. Bitcoin’s price also saw another return to the holy grail of $10k, with altcoins waking up in response. This article summarizes China, bitcoin and blockchain and how this announcement affects the future of Chinese economic policy.

China’s political posturing around blockchain acceptance meant many different things to different people. In fact, the news cycle on the Monday following all of this news was nothing short of an infinite slew of opinions and forecasts.

But most can agree on a few general theories surrounding why this all came about and where it could be going. Enjoy these key points and ‘what ifs’ and hopefully they’ll give you a bird’s eye view of what is happening.

China, Bitcoin & Blockchain: Key Points

The idea of China being “all in” on the blockchain is nothing new 

China has been actively building infrastructure for a central bank cryptocurrency since bitcoin first came into public awareness. This announcement was probably part of their overall marketing strategy to roll out their upcoming digital RMB. But this has been in the making for years:

  • According to Huang Qifan, the Vice Chairman of the China Center for International Economic Exchanges (CCIEE), the People’s Bank of China (PBOC) has been researching digital currency electronic payments for over five years.  
  • In April of 2019, we published an article outlining China’s big banks and how they already were focusing on blockchain technology. Incidentally, of the top ten banks by assets in the world, the first five are Chinese banks.
  • Ethereum World News (EWM) wrote in a 2018 article that the current Chairman of China’s Securities Regulatory Commission, Yi Huiman, said that the ICBS Bank of China is currently focused on adopting blockchain technologies to improve its financial services.
  • China officially outlined its strategy to digitalize the Yuan in April 2019.
  • According to CoinTelegraph, China now has 700 blockchain companies in operation.

The announcement should have surprised no one, but its timing could have major implications. 

The timing of China’s announcement

It’s interesting to know that this announcement is just a few weeks ahead of China’s biggest shopping day. “Singles Day” is on November 11th, 2019 and there have been some rumors that this may be the day that China decides to do its first testing out of its state digital currency. 

Additionally, the news hit the internet one day after Congress held a hearing on Libra, questioning Mark Zuckerberg. All in all, the unproductive proceedings most likely set back Libra’s chances of success. 

China’s announcement also came on the heels of a summer’s long tariffs and the trade war with the US, who is now gripped in a divisive and no doubt highly manipulated presidential election.

If you were marketing a product, it seems as though this announcement couldn’t have come at a better time. That is, if you are the Chinese government.

Trade Wars have reemphasized China’s desire to be free of USD manipulation

Things are changing; China has become more industrialized and tech-centered. Their hopes for global economic dominance are not far fetched. These aspirations are being fueled by instability in the US, with its long-standing quantitative easement and rate manipulation policies, which have come into full force in recent weeks. 

With a digital currency run and controlled by the Chinese government, and over 1.4 billion people compelled to use it, imagine what that will do to the USD in terms of competition for the first central bank cryptocurrency. How far behind is the US? Well, they haven’t even started.

China considers Bitcoin and Libra to be unworthy competitors

Chinese is straight to the point when it comes to non-sovereign currencies like bitcoin and the proposed Libra coin. Their view is that decentralized currencies are outside of sovereign money, and therefore are unsafe, volatile, and not the path to ‘social wealth’. 

“The value of the currency cannot be stabilized and it is difficult to truly form social wealth” – Yi Huiman, Head of a Chinese Think Tank, in reference to Facebook’s Libra cryptocurrency project

The American Economy is ripe for the picking

Negative interest rates are now common across Europe and are expected to seep into the American economy as well. This in addition to a recession like atmosphere could set up a void caused by bad monetary policy that a decentralized cryptocurrency like bitcoin could definitely fill. 

Now seems to be the perfect time for China to step in with their own coin, which would, of course, be completely centralized. This announcement could actually be geared toward warming up the Chinese people to crypto while simultaneously preparing them for a state (and much more ‘secure’, as they are selling it) digital Yuan. 

Why did bitcoin pump?

Some people believe that bitcoin pumped due to the newfound interest of Chinese people in reaction to the announcement. This was evidenced in increased searches of “Blockchain” and “Bitcoin” on the state run search engine, Baidu. Others feel that the mini bull run was a result of the global response to the China announcement. 

No matter what you think caused the spike, bitcoin price jumped from $7502 to over $9900 on Friday, October 25th. This was the same day China announced its blockchain strategy.

China’s massive marketing strategy 

Xi’s announcement that blockchain was the new big industrial revolution for China did not happen as an isolated press event. It was part of a many-pronged marketing campaign kickoff that included:

  • Features in state-run newspapers
  • Chinese social media campaign
  • State TV programming
  • The introduction of a blockchain course offered by China’s most downloaded app. This includes lessons on bitcoin and Ethereum.

On top of all that, China put out a new cryptocurrency assessment index to rival CoinMarketCap. The new rating system places bitcoin at #11 and favored Asian-based cryptocurrencies like Tron and EOS at the top of the list. Not hard to imagine where the digital RMB will be located on this list once the currency is official.

The self-applied positive press by China on their upcoming digital Yuan came alongside a official ban on negative press regarding blockchain technology. It thus became illegal in China to express views that cryptos are scams, for example.

The market strategy seems to focus on several, clear focal points:

  • China intends to be the first to have a central bank ‘cryptocurrency’. Though it will be far from the censorship resistant, immutable, decentralized bitcoin.
  • Chinese citizens will be able to connect to this blockchain, which the government is spinning as the heart of the economy. By connecting to the blockchain, a piece of your heart is there as well, making it a 1.4 billion-person love fest. But this story about connecting everyone this way this is very powerful.

Now that we’ve covered the main points of what’s happening with the Chinese digital Yuan, let’s get into some hypothetical “what ifs”.

What ifs….?

What if China allowed its citizens to do wallet to wallet bitcoin transactions? Would peer to peer capabilities lead to world dominance of the Yuan? Or would this open the door to global financial surveillance beyond just China’s borders.

Binance recently announced they are launching peer to peer trading services in combination with Alipay and WeChat, two of China’s biggest companies. If the Chinese people get a taste for peer to peer payments with cryptocurrency, will they be able to trade peer to peer on other cryptos? Is it possible to stop them?

What if China decided to infuse more capitalism into its communist regime? If markets could determine the success of currencies, instead of their being propped up in a manipulative manner, would that put the Chinese at an advantage?

What if the US continues it’s lagging cryptocurrency policies and its focus on anti-innovation? Will that be it for the USD’s global dominance? If American regulators keep inhibiting cryptocurrency innovation, will that be the death nell for the USD as a global reserve currency? All while China’s front faced push to dominate continues unhindered?

None of these “what ifs” are a hard leap to make. 

  • China has had many giant leaps forward with massive infrastructure rebuilds. For example, they recently dumping $176 billion into rail and transit projects. 
  • The Chinese government has been banning other forms of cryptocurrenices such as bitcoin, mining and crypto exchanges for years, inhibiting non-state crypto projects to keep focus on a centralized version.
  • China now has a massive technology infrastructure as reported by Export.gov

“China’s information and communication technology (ICT) market are among the most dynamic sectors in the economy.  By 2021, the market is projected to reach $8.1 trillion, representing 55% of China’s GDP, according to information technology (IT) consulting firm IDC.”Export.gov

If this isn’t a move for economic dominance, I don’t know what else is. It would seem that America would do well to embrace bitcoin hardcore, and now.

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