Bitcoin Makes a Surprising New Friend

It turns out that bitcoin had no problems overcoming the small matter of the Chinese government banning initial coin offerings (ICOs), having proposed to close down bitcoin exchanges.

In early September, China announced that it was banning ICOs, and that any money raised was to be returned to investors. Of course, they made no mention of how this was going to happen. Just that it should.

A couple of days later, rumours filtered through the market that China was actually looking to ban all cryptocurrency exchanges based in the country, with local news outlet Caixin writing:

Chinese regulators ordered a halt to all virtual currency trading platforms in the country, acting to further rein in risks related to cryptocurrencies, Caixin learned from a source close to regulators.

The central government’s office overseeing internet financial risks has ordered local authorities to shut down virtual exchanges trading digital currencies with the yuan, a source close to the office told Caixin. The order will affect major Bitcoin platforms such as OKCoin, Huobi and BTC China.

If that wasn’t enough, there was also the issue of JPMorgan’s top brass Jamie Dimon saying bitcoin was a massive fraud. Dimon told the world that if any JPMorgan employees were caught trading the cryptocurrency, he would ‘…fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous.

These three ‘events’ happened within a few days of each other. As you can see on the chart below, traders reacted quickly by dumping bitcoin. In fact, the cryptocurrency fell 31% in less than five days.

Bitcoin USD Price 4-10-17

Source: CoinDesk
[Click to enlarge]

Yet the doom and gloom in the bitcoin market didn’t last long. Some three weeks later, bitcoin is now back above the US$4,400 (AU$5,616) threshold.

This recent price action tells us a couple of things. For one, no one is taking bankers seriously. More than that, bitcoin is as popular as ever in China.

As reported by the South China Morning Post, despite the possibility of exchanges shutting down, it hasn’t doused interest in the currency. Instead, traders have moved to ‘peer to peer’ marketplaces and apps. A Chinese investor told the newspaper that he would continue to trade bitcoin regardless of the prospects of exchanges closing, saying:

They can’t set rules to stop me from investing in what I want to invest in. They say you are protecting me, but as long as I think this is good, they have no way to intervene.

I can do over-the-counter trades or I’ll go offshore… My wallet is my wallet. I’ve never registered my identification card.

The key to keeping bitcoin and other cryptos independent is storing your wallet offline.

It’s not an easy thing to get your head around. But Sam Volkering of Secret Crypto Network says you should opt for what is called a ‘cold storage’ when it comes to your bitcoin. You can find out more about how that works over at Secret Crypto Network

In spite of a few days of attention-grabbing headlines, bitcoin has bounced bank and traders in China are as active as ever.

Even though Dimon claims bitcoin is fraudulent, the crypto has found an unlikely friend over at the International Monetary Fund (IMF).

While speaking at a conference in London, Christine Lagarde, the head of the IMF, told the crowd that it would be wise not to dismiss virtual currencies, saying:

In many ways, virtual currencies might just give existing currencies and monetary policy a run for their money.

In many ways, virtual currencies might just give existing currencies and monetary policy a run for their money.

Lagarde went on to point out that countries with weak institutions and unstable national currencies would be more likely to embrace digital countries:

Instead of adopting the currency of another country — such as the US dollar — some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0.

So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.

Of course, to keep the people in power happy, Lagarde pointed out that cryptocurrencies are ‘…too volatile, too risky, too energy intensive…because the underlying technologies are not yet scalable.

In other words, Lagarde is letting bankers around the world know that cryptocurrencies are the future.

We agree. We’ve rarely seen the kind of potential to make money in the markets as we do with cryptos. And while the gains being made have been astronomical to date, we believe the best days are still ahead. Find out why here.

Kind regards,

Shae Russell,
Editor, Markets & Money

Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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