Education

Bitcoin is Already “Too big to Fail” which is why a black market will emerge in China(part 2)

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(continued from part 1)

But … What is behind the continuous comings and goings of the Chinese authorities?

The history of the Chinese authorities with respect to Bitcoin must be viewed with suspicion. Only the Chinese authorities know for sure what is really behind their declarations and subsequent legislation of Bitcoin, but the most likely hypothesis is that it’s a well-planned and perfectly calculated strategy. For several months, the Chinese authorities have apparently decided to remove Bitcoin from its national economy.

In order to assess the potential impact on the Bitcoin ecosystem by the Chinese, keep ion mind that in the brief history of crypto-currencies, Chinese Bitcoiners have come to assume up to 90% of their trading. The evolution of crypto-assets can have an important influence on the economic policy of China.

So much so that the Chinese government can’t let these cryptocurrencies devalue because that would lead to a psychological drop in consumer sentiment. The risk is that the fall of Bitoin would be accompanies by a parallel fall of the consumer sentiment and the consumption of the individuals, with all that this implies at the macroeconomic level. In other words, crypto currencies are already too big to fail.

Some of you may be thinking that this argument doesn’t hold much water at first glance, and it is true that Bitcoin’s market cap figures are dwarfed by comparing, for example, with Chinese GDP. But the truth is that there is more of a psychological factor at play here. A crypto currency that is in the hands of many and in the mouth of almost everyone is what’s at stake. It is a safe haven. Especially when Chinese citizens see in Bitcoin the escape route to the state’s over-regulation of the national fiat currency and its capital markets.

Something similar happened with the black market of dollars in the former Communist Eastern Europe. And the value of Bitcoin will be further supported by the policies of other countries where, as in the case of Japan, Bitcoin has officially been declared a legal payment method. The same is happening in Russia, and in Finland where the Finnish Central Bank  has recently adopted an official permissive and tolerant stance with Bitcoin.

We see, then, that the succession of events in China may be more a matter of confidence and perception than of relative weights of Bitcoin in the whole of his economy. Indeed, the Chinese authorities seem to have opted to dynamically control the domestic Bitcoins market, but the move is more than likely to bring them surprises.

Because Bitcoin is already overlapping with the economic systems and policies of many countries, and, no matter how restrictive China’s case, legislating simply goes a step further in admitting publicly the progressive penetration of Bitcoin in the fabric of our economies. In the end, the conclusion must be that the economy is what it has: when a government builds an artificial containment dam in the middle of the course of a river, at some point the water ends up overflowing elsewhere.

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