Many people attribute yesterday’s sudden rise of bitcoin price to Chinese President Xi Jinping’s recent speech. If this is indeed the case, then the market is misreading China’s crypto policies.
I’m not saying that bitcoin price should not rise, because that’s a whole different position. I’m just saying that the crypto market misunderstands China’s position on blockchain (or DLT in general), cryptocurrencies, and bitcoin.
First, let me clarify that Xi’s speech was a very official and significant one, not anything like a tweet from President Trump. Xi spoke during the First Group Study Session of the Political Bureau of the 18th CPC Central Committee. Don’t be misled by the seemingly light word “Study”. In the CPC (Communist Party of China) power structure, this is not a casual discussion in any sense. It is the Party’s top-level workshop, which is the beginning of the hierarchical implementation of a new set of national policies.
Nevertheless, Xi’s highlighting the blockchain technology is not surprising at all. It’s not even new. Chinese government’s position on blockchain, AI, and IoT has been clear and beyond being merely supportive for years. Xi’s speech just indicates that they will further increase policy support and investment.
But what people are misunderstanding is that “blockchain” is not the same as “cryptocurrency”, and further that “cryptocurrency” is not the same as “bitcoin”.
China banned bitcoin and cryptocurrency exchanges in 2017. People seem to take Xi’s blockchain comments as a sign the country could ease bitcoin and crypto restrictions.
I can tell you that this is not the case. If anything, China will become even more restrictive on bitcoin and any cryptocurrency that has substantially decentralized governance.
What China will push and invest in is blockchain technology’s industrial and commercial applications that do not directly bear on the fiat-based currency system.
You will ask, what about banking? In banking, China has already started to push its “fiat cryptocurrency”. Many call this an oxymoron, but it is so only in an idealistic sense. China wants a pragmatic solution. They want to keep the central governance (albeit with multiple levels in the banking system), but at the same time take advantage of some of the crypto advantages, the most important one being crypto’s native support to industrial and commercial applications of the blockchain technology, which as mentioned above, is the true focus of China’s blockchain initiative. They believe the “crypto renminbi” will do just that.
Whether or not you think it’s a good government policy design, China has made up its mind.
The US, on the other hand, still doesn’t know what to do.
However, if the theory of market economy proves to be valid with respect to crypto and blockchain development as well, one should hope that such development in the US and other market economies only needs government support in the sense that the governments do not hinder the development.
If this plays out on the current trajectory, it will become a large front of the battle between two different economic systems (or ideologies, as some would say).
For bitcoin and other cryptocurrencies, expect war with China.