Bitcoin has been taking a beating in the media lately—as JPMorgan CEO Jamie Dimon called it a “fraud” last week, and plenty of other finance guys piled on. This came on the heels of the People’s Bank of China shutting down/suspending a couple of bitcoin exchanges, and the news today makes it look like the government is ready to take their assault on the cryptocurrency a step further. Per The Wall Street Journal:
Officials communicated the message to several industry executives at a closed-door meeting in Beijing on Friday, according to people who were at the meeting. Until last week, many entrepreneurs in China’s bitcoin circles had thought authorities might shut down only commercial trading activity while tolerating peer-to-peer, or over-the-counter, bitcoin platforms, which enable buyers and sellers to find each other and trade directly.
Word of a more serious tightening spread after the meeting and at least one Chinese platform last week announced it would halt one-on-one trading services per official instructions. The Chinese plan represents some of the most draconian measures any government has taken to control bitcoin.
The decentralized nature of bitcoin is such that it is impossible to “ban” the cryptocurrency, but if you shut down exchanges and the peer-to-peer economy running on bitcoin, it’s a de facto ban. Just look at what they did to Google. The central platform of the most expansive company in the history of mankind is virtually inaccessible in China—as its search engine commands less than 2% market share at this moment, compared to 36% before they banned it.
This is what China does. Instead of Google, Baidu is their monolith. Instead of Amazon, they have Alibaba. The Chinese economy is completely managed by the government, and the central thesis of bitcoin—a currency that does not require a central issuer—is a direct threat to their model. They included cryptocurrency in their 13th Five Year Plan—which means this tech is coming to China—but given their history, it will be Chinese government-approved cryptocurrency (meaning that the most vast surveillance state in the world will have access to personal information that cryptocurrency was designed to protect).
However, despite all this chaos, bitcoin’s price has remained within range of its all-time high of $5,000 (it was around $1,000 at the beginning of the year). After weeks of rumors and unconfirmed reports about the Chinese government’s impending decision, it fell around 30% beginning last week, and hit its recent low around $3,000. But it rose back up over the weekend, and as of this writing, it is hovering around $4,000. The price has been remarkably stable given the dramatic changes currently taking place with bitcoin’s tech, along with the uncertainty injected into the market by the Chinese government, as well as American regulators and financiers (if you’re curious as to what the recent changes to bitcoin are—or about cryptocurrency in general—I did a longer write-up on the space a month ago).
This stability suggests that the people who actually trade in this economy still view it in a positive light. I’ll have a post coming out later this week rebutting Dimon’s ridiculous comparison of bitcoin to the Dutch tulip craze of the 1600’s, but once you look at the fundamentals of bitcoin—there’s far more of a bull than a bear case. Here, let someone much smarter than me quickly explain.
To give you an idea of how quickly things change in this space: nearly all bitcoin trading was done in China as of January, Tom Lee said it was 30% in that video from Friday, and the WSJ wrote today that China accounts for less than 15% of all bitcoin trading volume. Japan has taken the lead now, and through all this madness, bitcoin has continued its steady rise. The crash from $4,000 to $3,000 and the jump back up was almost certainly Chinese money fleeing to Japanese exchanges—which is evidence that even if China cuts off access to bitcoin, there is still enough demand elsewhere to keep the bitcoin economy afloat.
We're definitely in a bubble, but it's not popping anytime soon. This is a brand-new technology that people are still trying to figure out, but just look around: your computer, your phone, your car—your entire life is built by software, so digital money is a logical next step. Blockchain technology's decentralization is the greatest innovation in the history of financial ledgers and monetary exchanges, and it already has dramatically changed the way the world uses money.
It would cost $30 billion to create one fraudulent bitcoin transaction, and the nature of this inherently trustworthy system is what threatens the Chinese government and entities like JPMorgan. If that’s your list of enemies, you know that you’re doing something right.
Jacob Weindling is a staff writer for Paste politics. Follow him on Twitter at @Jakeweindling.