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Friday the Chinese government redoubled its efforts to curtail the use and mining of cryptocurrencies. The move sent crypto prices tumbling but should not have come as a surprise to anyone who has been paying attention. Beijing has been playing footsie with crypto bans since 2013.
The ban boils down to one word, control. Many powerful international actors are frightened by the idea of financial systems and securities that exist outside the regulatory tentacles of the state. China feels this fear more keenly than most given both the high degree of state planning present in the Chinese economy and the repressive nature of the regime.
Some of this desire for control seeks to address legitimate concerns like price volatility, criminal behavior, and the environmental impact of mining. There are debates to be had over the best way to redress these concerns. The extent to which regulators are engaging these questions in good faith as opposed to using them as a convenient excuse to crack down is also debatable.
China’s recent record of ignoring international law and violating its citizens privacy indicates that repression and geopolitical gamesmanship, rather than good faith regulation, is the goal. The digital-yuan, which will allow Beijing – the people who brought you the social credit system – to track transactions as they happen, is nearing release. Beijing also hope that its centralized digital currency will erode the dollar’s dominance in international financial transactions. This latest crypto crackdown demonstrates that they Chinese are eager to quash the competition.
The crackdown isn’t necessarily doom and gloom for crypto investors. Markets tend to go red when regulatory news comes out of Beijing but they have always bounced back. While investors must be careful not to conflate the past and the future, Friday’s China dip may present an interesting buying opportunity for those who are long on crypto.
As always, DYOR, I’m not a financial advisor.
