Bitcoin surge from Chinese population leads to further capital controls directed against digital currency
As the Chinese Yuan has experienced intense pressure in recent weeks due to the dollar climbing over 100 on the index, the government has sought to institute stringent capital controls to prevent capital flight by the people wanting to flee out of their currency. ¬†Yet this is exactly what has been happening as multitudes of Chinese have found Bitcoin to be the best and most fluid middleman to move their wealth outside the country.
But for those who know the Chinese government, this process would not go unnoticed for long as the central bank for China on Jan. 7 issued a statement where they are now cracking down on any attempts at capital flight, and will monitor any ‘abnormal behavior’ from account holders appearing to be making transactions that would seek to get their money out of the financial system.
Having long been advocates of Bitcoin (ever since Sept. 2015 when it traded at $230) for the simple reason that we were confident the digital currency would eventually become China’s favorite means of circumventing capital controls – precisely as has transpired – two months ago we warned that the unprecedented surge which made bitcoin the best performing asset in the past year with a 5x return, may be ending as “China Prepares To Impose Curbs, “Capital Controls” On Bitcoin.”
Since then, and especially over the past week, China has launched a series of incremental steps designed to do just that, which culminated on Friday when China’s central bank issued a statement calling the changes in the virtual currency “abnormal”, and said authorities have required the trading platform to operate in compliance. They urged the platform to “probe investors’ behavior and to “rectify misbehavior.”
The statement hit shortly after China FX regulators, SAFE, said it would begin scrutinizing fund outflows via Bitcoin, as China sought to close this final gaping capital outflow pathway.
Furthermore, according to China Daily, China’s financial services authorities required major executives of the Shanghai-based bitcoin trading platform BTCC on Friday to “rectify misbehavior in the trading of the virtual currency”, without clarifying precisely what this means, and to raise awareness of risks as the value of bitcoins experienced wild fluctuations.
China’s mass speculators flocked to the bitcoin market in recent days in a bid to gain from its fast appreciation, which rose 200% in 2016. However, after rising in near-exponential fashion over the past few weeks without any corrections, Bitcoin’s value fluctuated by more than 30 percent within the past two weeks as concerns of Chinese interference first emerged and were then confirmed. .The statement said authorities would like to reaffirm that the bitcoin as a virtual currency which cannot and shall not be regarded as currency in circulation. – Zerohedge
Ever since the Yuan has been under pressure from the U.S. dollar, the price of Bitcoin has skyrocketed from around $640 to nearly its all-time high of $1165. ¬†And perhaps it was this scare made by the PBOC that cooled the crypto-currencies rapid uptrend since in just the past two days the value of Bitcoin in dollars is now below $900.
It is ironic that Bitcoin has emerged more as a medium for currency exchange than it has as a form of money to be used in commerce as originally intended. ¬†But that is what makes the digital money so threatening to governments and central banks around the world because it offers any individual the power to perform currency swaps without having to report the transaction through a controlled financial platform, or within a government’s monitoring infrastructure.
Kenneth Schortgen Jr¬†is¬†a writer for The Daily Economist, Secretsofthefed.com,¬†Roguemoney.net, and Viral Liberty, and hosts¬†the popular youtube podcast on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.