This is how the rehabilitation of Bitcoin could work

On the part of the Chinese central bank, surprisingly frank tones can be heard towards Bitcoin. Why China can’t keep Bitcoin down forever, what a gradual opening can look like and what impact this could have on the crypto market.

China has a difficult relationship with Bitcoin and the crypto economy. Before the ICO bubble burst in 2017, China banned trading and paying with cryptocurrencies. The loss of control was too great that the government pulled the rip cord. Now, around four years later, a lot has happened in the crypto sector. In the meantime, it is large banks and stock exchanges that enable regulated crypto trading, especially in the West. The state has understood that Bitcoin is not anonymous. A Bitcoin that is held in a central custodian is just as easy or difficult to control as a traditional equity fund.

The recent statement by the Chinese central bank that Bitcoin can be seen as an “investment alternative” spreads the cautious hope of opening up crypto. Not an opening as crypto enthusiasts imagine, but an opening that could allow limited legal participation in Bitcoin and Co. for the Chinese population in the future.

Bitcoin can be banned, but it just doesn’t work that well

The idea of ​​a Bitcoin ban is more topical than ever. Turkey, for example, has banned Bitcoin payments, and Nigeria and Venezuela have Crypto trading. These and other states, which are currently taking action against crypto currencies, agree that their national currencies are affected by massive inflation and are depreciating sharply in external value. As a result, capital flight is particularly high in these countries. From this perspective, the fact that states intervene to prevent an even worse devaluation is quite understandable.

However, the effectiveness of these bans is questionable. It is well known that the population repeatedly finds detours to circumvent the prohibitions. The states must also be aware that this will cause them massive damage in the long term. After all, many of the future business models will be based on cryptocurrencies. Banning cryptocurrencies is a little bit like shutting down the internet. A statementWhich, mind you, comes from SEC Commissioner Hester Peirce and not from an anarchist Bitcoin maximalist.

The fact that a Bitcoin ban threatens significant negative consequences is no longer secret knowledge, even among states. If even the powerful American securities regulator, the SEC, says that it would be “idiotic” to ban Bitcoin and that it is not considered realistic, then every other state should consider very carefully whether it would like to adhere to a ban. A drastic restriction on cryptocurrencies that goes beyond “normal” regulation is just a desperate and short-term solution to cover up other symptoms.

China’s way back to the crypto market

In contrast to Turkey or Venezuela, the Chinese renminbi does not have to contend with devaluation, on the contrary. The government is more likely to be confronted with the problem that the domestic currency appreciates too much and thus makes exports more expensive. In China, which is obsessed with surveillance, concerns about loss of control are likely to be the main motivation for crypto bans. The fact that payment flows cannot be recorded centrally must be prevented at all costs, see digital central bank money (CBDC). Accordingly, the monopoly status of the e-yuan currently being tested must be secured. Cryptocurrencies in the sense of a currency should therefore not stand a chance in China anytime soon. It looks different, however, if, as is now common with Bitcoin, one emphasizes not the currency aspect, but the asset aspect. So is it[called From Li Bo, Deputy Central Bank Director of the Central Bank of China (PBOC):

They are basically not a currency. The main role we see for crypto assets in the future is that of an investment alternative.

Li Bo, deputy central bank director

This sentence says a lot about understanding Bitcoin and allows speculation that China might allow Bitcoin as an asset. As a freely convertible currency, however, Bitcoin would remain banned. Should mean that the possession of cryptocurrencies via private key is still prohibited, but not the acquisition of Bitcoin financial products or Bitcoin that are centrally stored by a regulated body. Comparable to PayPal from the USA, it could be conceivable that, for example, Alipay or Tencent would receive a state license to offer crypto trading via custodial wallets, with the same KYC conditions as when opening a bank account and without the option of not transferring the crypto currencies to a bank account -send verified wallet.

No economic power without a platform economy

In this context, it is conceivable that China would like its people to participate in the added value of the crypto sector. Without economic freedom and various investment options, the Chinese national wealth will not be able to grow to the extent necessary to position China as the number one economic power. In this context, restricted access to blockchain platform solutions is also conceivable, in which the payment aspect is partially approached via utility tokens. These blockchain platforms should in turn be regionally limited and thus controllable. State nodes such as the Blockchain Service Network (BSN) can very well be used to create decentralized structures that allow innovative decentralized platform solutions without having to give up too much control.

After all, there is a Chinese counterpart for almost every major American Internet platform. Just think of Amazon and Alibaba or Google and Baidu. It is therefore very possible that China will create its own blockchain protocols. These could then try to map all services or smart contract functionalities of the “free” blockchain solutions.

Be careful with expectations that are too high

Should the Chinese state consider a slow opening for the “investment market” of cryptocurrencies, then this is a very positive signal for the prices of cryptocurrencies. The legal and regulated environment would also force a great deal of free capital from Chinese households and companies into the market. In view of the high growth rates, this should not only stabilize prices over the long term, but also drive them further north.

However, it is still too early for euphoria. The Chinese state will be careful not to open the floodgates for the crypto market overnight. The cautious statement by the PBOC is only a first step, which must be followed by a great many before something really happens.