Cryptocurrency: The New ‘Money Rebellion’

Cryptocurrency news is impossible to escape these days. At least for those interested in protecting their money from the fiat money system.

If you prefer to keep all your fiat dollars ‘safely’ in a bank account, earning a little interest — all the while having your purchasing power eroded by central bank created inflation — then today’s Markets & Money probably isn’t for you.

There’s a revolution under way. And you have a front-row seat in watching a new monetary power emerge. It’s a not a government or country. Instead, it’s a challenger to both. We’re talking about cryptocurrencies.

Much like physical gold, cryptocurrencies don’t run to a government agenda. Their values are determined by the marketplace trading them. Leaving many governments and central bankers to label them as volatile, unpredictable, or even deriding them as scams.

But digital currencies aren’t going away.

Judging by the actions coming out of China, I’d say the pressure is increasing in the Middle Kingdom to get this monetary rebellion under control.

Over the past few years, bitcoin and other cryptocurrencies have fallen under intense scrutiny with authorities. However, the last couple of weeks have put digital currencies back on the Chinese government’s agenda…but not for the reasons you might think.

The battle against cryptos heated up two weeks ago when China banned initial coin offerings (ICOs).

An ICO is a form of funding start-up that companies are turning to. In exchange for investing cash, people are receiving either newly-created cryptocurrencies or pre-existing ones like bitcoin and Ethereum.

Less than a week later, rumours took over the web that China was about to shut down all Chinese cryptocurrency exchanges, 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.

Unsurprisingly, all this news coming out of China has disrupted the bitcoin rally:

Bitcoin Price 12-9-17

Source: CoinDesk
[Click to enlarge]

The first time China stepped in and banned ICOs, bitcoin fell 12.7% before rebounding. Then, just as bitcoin picked up some steam, the rumours of a cryptocurrency exchange shutdown caused the bitcoin price to fall 9.6%.

What’s interesting to note, though, is just how much the bitcoin price has fallen on a rumour. There’s no official statement from the People’s Bank of China (PBoC) or the Chinese financial minister.

That hasn’t stopped mainstream news sites jumping on the bad-news-for-bitcoin bandwagon, though.

MarketWatch quoted people familiar with the matter, writing:

Chinese authorities plan to shut down domestic bitcoin exchanges, delivering a final blow to a once-thriving industry of commercial trading for virtual currencies, which took off inside the mainland four years ago.

Not to be left out, Bloomberg jumped on the story, noting:

China plans to ban trading of bitcoin and other virtual currencies on domestic exchanges, dealing another blow to the $150 billion cryptocurrency market after the country outlawed initial coin offerings last week.

The ban will only apply to trading of cryptocurrencies on exchanges, according to people familiar with the matter, who asked not to be named because the information is private. Authorities don’t have plans to stop over-the-counter transactions, the people said. China’s central bank said it couldn’t immediately comment.

Even The Australian joined in the bitcoin-bashing fun, telling readers on Monday that ‘people familiar with the matter’ were aware of draft instructions from authorities relating to a cryptocurrency exchange ban.

Again, there’s nothing coming from official channels in China to say that this is true. Cryptocurrency exchanges are about to be shut down. Right now it’s all just white noise being ramped up by an eager media to shut down what they don’t understand.

 A monetary revolution to protect your wealth

The mainstream is seizing the moment and running with the rumour. In some cases, mainstream sites are using China’s latest approach as another reason for why cryptos shouldn’t be trusted.

The thing is, it might look like bitcoin and other digital forms of money are under attack from China, but there’s more to the story.

One thing spooking China at the moment is that people are buying cryptocurrencies as a way to protect against a falling currency. Which is no surprise to me. When you have governments around the world trying to manipulate the value of your money, you have every right to find a way to protect your wealth.

But perhaps the bigger reason is that China needs to maintain control of its money supply. And any fiat money finding its way into cryptocurrencies prevents them from doing that.

The Middle Kingdom is trying to shift its economy away from manufacturing to consumerism. That can only be done if people keep their cash in the country and spend it.

The more that people invest in bitcoin, the more that China loses its grip on controlling the money supply and economic growth.

Over the past three years, Chinese authorities have seen significant ‘capital flight’ — people taking money out of the country and investing it elsewhere. In the past 12 months, China has clamped down heavily on this practice.

The problem is, people find ways around regulations.

Cryptocurrencies allow you to transport your fiat dollars anonymously. Meaning you can move your money from one country to another, and no one would know it was you. Unlike an international transaction that goes through your bank account.

It means that Chinese citizens can move their money out of the country and Chinese officials would be none the wiser, getting around China’s capital controls.

China isn’t anti-cryptocurrencies at all. It just needs to work out how it can control it to their benefit. As well as how it can prevent capital flight out of the country.

Don’t let the mainstream seizing on rumours as a way to discredit cryptocurrencies fool you.

Once China work how to control the flow of money once more, it will be business as usual for bitcoin and its crypto cousins.

For more information on the emerging cryptocurrency revolution, click 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.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money