Everyone loves Bitcoin. Personally, I can’t get enough of it. Though I just sold all of my XRP, as an aside, because I learned it was being delisted from Coinbase next week, Bitcoin, on the other hand, I am keeping for the moonshot.
Now that Grayscale has its Bitcoin Trust exchange-traded fund, the market cap for Bitcoin has hit a trillion dollars. It is approaching $40,000 per coin.
We know the role central banks are playing in BTC’s rise: debasement of currency via money printing. But what about China?
This is the most curious one for me, especially following what appears to be the self-exile of Jack Ma, the billionaire founder of Alibaba BABA +4.1%. Ma got into some trouble with Beijing regulators following the postponed listing of his fintech company Ant Financial, owners of AliPay, which is ubiquitous in China (you can also find it at your local CVS for some reason). Now there is talk of breaking up the Jack Ma tech empire, something akin to what anti-Big Tech advocates here in the U.S. have been asking be done of Google and Facebook.
One can almost see Chinese billionaires buying up Bitcoin, just in case Beijing comes for their wealth. Lord knows the dollar is in decline, and they probably already own a ton of stocks.
The Chinese currency, out of all the G10 currencies, has the strongest statistical correlation to BTC over the last 12 months, at around 84%. That means that as the RMB gets stronger against the dollar, so does Bitcoin, 84% of the time, says Vladimir Signorelli, head of Bretton Woods Research in Long Valley, New Jersey.
“When Bitcoin rises, the RMB is rising right along with it,” he says, adding that the euro has a 74% to 75% correlation with Bitcoin. The Russian ruble has a 25% correlation.
And then there is the Jack Ma effect. He’s the “canary in the coal mine” says Signorelli. “There could also be an internal dynamic in China keeping Bitcoin bullish,” he says. “You have Jack Ma’s total disappearance since October. Was it a canary in the coal mine for every millionaire and billionaire in China that you need to have a Plan B? There is a real risk of outright confiscation of your wealth. They see it clearly now.”
China’s crypto market has a massive user base. Singapore-based ZB.com Exchange is one of the top four exchanges that are popular among Chinese users. “Our in-app community is very active with Chinese users right now,” says Oman Chen, ZB’s CEO. The seven-year-old company runs digital asset trading platforms ZBM, ZBX and Bithi, cryptocurrency wallets like BitBank, and has a venture capital and research arm. “Most of these traders are very optimistic about the price of Bitcoin,” Chen says.
QCash, a stable coin trading pair supported on ZB.com, which is anchored to the Chinese yuan, is seeing strong trading volumes, according to ZB data. QC is the most liquid yuan-based stable coin.
China’s Digital Yuan Experiment
Last month, China gave its digital yuan a test drive in Suzhou. The experiment lasted roughly 10 days, but stands as a testament to China’s interest in crypto beyond the Bitcoin phenomenon.
Xinhua newswire reported on one resident surnamed Lu who had bought some snacks at a store in the Tianhong Shopping Mall using digital yuan. She transferred 66.6 yuan (about $10.21) from her digital wallet to the vendor’s account with no need for a cell tower connection.
Lu was one of the 100,000 residents of Suzhou who were given 200 digital yuan in the pilot program and could spend it at designated brick-and-mortar stores as well as online at JD.com between Dec. 12 to 27. Noted: not Alibaba.
This doesn’t mean the Chinese government loves Bitcoin, of course. Just that its population is more accustomed to the concept of cryptocurrency than the average American. Go ahead, ask your dad if he knows what Bitcoin is.
“The Chinese government considers Bitcoin a commodity, not a currency,” says Aries Wanlin Wang, a Chinese cryptocurrency investor.
The digital RMB (DCEP) program in Suzhou has adopted some blockchain functionalities but it is not the fully decentralized kind that true Bitcoin lovers want.
“The Chinese government wants to promote the digital yuan before anyone else,” says Wang. “They see the potential of a new payment and clearance system in the digital currency era. It may substitute the current Swift system,” he says, which tracks interbank transactions and is led by the U.S.
Crypto For Poor Countries
Last month, Venezuela’s government said it was giving up on its currency and would switch slowly to a digital system. Their Bolivar is worth less than seashells found on Margarita Island so it makes sense.
Argentina should be next. All of this will drive continued enthusiasm for Bitcoin, no matter the price. At the start of 2020, Ripio, one of Argentina’s largest crypto exchanges, had around 400,000 users and then ended the year with over a million.
Argentina’s tight control over dollars (no one wants pesos there), coupled with a new 35% tax, plus limits as to how many dollars you can buy (just $200), means the Argentines have discovered Bitcoin in a big way, too.
China’s currency, unlike those two basket case currencies of South America, is strong and getting stronger. Moreover, its central bank has been moving on a digital form of its currency for at least three years. They lead on this within the big and medium-sized emerging markets. Indeed, the only country ever talking about Bitcoin is Venezuela, run by the mightily corrupt Socialists United party.
“Even though Beijing has a strong resistance to cryptocurrencies, namely Bitcoin, they have taken the part of blockchain technology that is beneficial to their country’s development,” says Chen from Singapore.
“The central bank’s digital currency can not only give the country a higher level of control over the fiat currency but also snatch back some Chinese users from third-party digital payment platforms such as Alipay and WeChat,” Chen says. Since central bank digital currency is issued at the national level, like fiat currencies, the state endorsement is more powerful to skeptics and it accelerates demonetization in favor of crypto.
Bitcoin, in China at the moment, is rising with the fortunes of a stronger yuan and the digital yuan experiments.
Rich Chinese nationals may be thinking, ‘you know what, I rather have something that is loaded and convertible and beyond the reach of Beijing and perhaps the reach of the PBoC’ — that’s the central bank of China.
In this way, they don’t have to worry about currency devaluation and Bitcoin becomes a tax hedge. The top income tax rate in China is around 45%.
People might not remember, but this time last year gold was at $1515 an ounce; it’s now around $1850. The dollar on a gold basis has lost 20% or more of its value, notes Signorelli, searching for reasons why Bitcoin has doubled in less than four weeks.
“If you put your currency and inflation hedges into BTC instead of gold, man…you’re doing fantastic,” Signorelli says. “My suspicion is that as Chinese wealth increases, it is going to be increasingly difficult for Beijing to prevent their nationals from seeking ways to preserve their capital outside of the RMB. If they can’t buy U.S. real estate or stocks, and U.S. and European bonds pay little, they’ll take some more risk with Bitcoin, I think.”
I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.
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