‘One thing is clear: the buzz for the digital currencies is gone, at least for now’, wrote Forbes over the weekend.
No, Forbes, not even close.
The ‘buzz’ around Bitcoin isn’t going anywhere.
What we have instead is a cryptocurrency battle raging all around us.
In one corner, we have the countries actively trying to integrate the alternative currency into their economy. In the other corner, there are the heavy-handed tactics being used to shut down cryptocurrencies.
Earlier in the year, Japan became the first country in the world to make bitcoin legal tender.
Following their lead is Switzerland. The land of milk and honey is positioning itself as a global hub for bitcoin and other cryptocurrencies.
A tiny town called Chiasso — located on the Swiss-Italian boarder — is eager to accept bitcoin. What’s being called the ‘CryptoValley’ by locals will now allow citizens to pay their taxes in bitcoins, capping the amount at 250 CHF (AU$327).
This follows a similar move by Zug, another small Swiss town. A few months back, Zug officials announced that people could pay their taxes in bitcoin, although they capped it at the lower amount of 200 CHF (AU$262).
Of course, while both towns are proclaiming they’re trying to become a tech bub, they openly admit that accepting bitcoins would replace lost revenue through taxes…but also draw more crypto businesses to the area.
Meanwhile, on the opposite side of the world is China.
On the surface, it looks like Chinese authorities are doing everything they can to stop the cryptocurrency movement.
It started almost two weeks ago, when China announced that all initial coin offerings (ICOs) were illegal.
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.
Chinese officials believe that ICOs open up too many people to scams. I’m sure some people do fall victim to scams, though I highly doubt this is the real reason.
The more likely reason for the tough stance on ICOs is because investing in them has become one giant tax avoidance method for Chinese investors. While around AU$482 million has been raised in the ICO market in China this year, it’s taking cash out of the economy — money the Chinese authorities desperately need to keep economic growth moving along.
Then came the ‘bombshell’ late Friday afternoon.
Reports filtered that China would shut down all cryptocurrency exchanges. The rumours all started on a Chinese news site, Caixin:
‘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.’
The note itself didn’t come from Chinese authorities. More importantly, since Caixin wrote that on Friday afternoon, there’s been no validation or denial from either the country’s financial regulator or the People’s Bank of China.
The second biggest exchange in China, BTC China, even released a note to the public pointing out that, while they hadn’t been informed of anything, they suggested they would act within ‘strict accordance’ of any letter.
It’s a little odd, in my view.
The Middle Kingdom isn’t known for insider ‘leaks’. The only information that finds its way onto the web is the information authorities want people to have.
The three largest bitcoin exchanges in China — OKCoin, BTC China and Huobi — all confirmed that they hadn’t received a thing from Chinese authorities.
Yet, even without an official confirmation, traders savaged the bitcoin price on Friday afternoon, sending it 7% lower.
We are at the beginning of a monetary revolution
Clearly the bad news hasn’t hurt enthusiasm for bitcoin. This morning, the cryptocurrency had started to regain its losses.
More to the point, the real problem here is how China’s actions are being perceived by the mainstream.
Forbes over the weekend suggested that China’s approach to bitcoin and other cryptocurrencies is causing us to question the legitimacy of it, writing:
‘But shutting off ICOs and cryptocurrency exchanges altogether, as China is doing, goes beyond traditional regulation. It questions the very legitimacy of Bitcoin, and its prospects for gaining broad acceptance as medium of exchange, an asset, and a means of different payments. To become money, that is, like national currencies.’
Of course, it goes without saying that governments don’t like to lose control of the money supply. And that’s what cryptocurrencies promote. If non-government-backed digital monies continue to filter their way through, it denies governments the ability to erode the value of your money, and how you spend it in the economy.
Once the political boffins lose power over money, it makes it much harder for them to engineer inflation and create debt. So, it goes without saying that they are intimidated by bitcoin and other cryptocurrencies.
The problem here is that only the countries banning or demonising bitcoin are making headlines.
The two towns in Switzerland taking steps to embrace bitcoin didn’t get a mention outside crypto news sites.
One way or another, there is a monetary revolution underway. It’s not going to play out in months or even years. Revolutions take a generation. And we are at the start of a monetary revolution. Details here.
Editor, Markets & Money