Has China really changed its tune on crypto?

I am of course talking about China’s recent turnaround regarding cryptocurrencies. The change of tone coming from Beijing and the People’s Bank of China (PBoC), with regard to cryptocurrencies makes you pause to think, ‘What’s all this about?’

China’s central bank is now referring to bitcoin as an ‘alternative investment’, signalling something is afoot in the country that cracked down on digital assets four years ago.

Of course it is a welcome shift in perspective from the Chinese, and many are describing it as ‘progressive’. At the same time, they are closely monitoring the PBoC for signs of forthcoming regulatory changes in relation to the crypto sector.

During a panel hosted by CNBC at the Boao Forum for Asia on Sunday,

Li Bo, deputy governor of the PBOC, said, “We regard Bitcoin and stablecoin as crypto assets … These are investment alternatives.” He went on to say, “They are not currency per se. And so the main role we see for crypto assets going forward, the main role is investment alternative.” This indicates an unwillingness to see bitcoin and other similar tokens, such as Litecoin, as a means of payment, but at least it is a move towards a broader acceptance of cryptocurrencies in China.

As CNBC points out, China was once one of the world’s biggest buyers of bitcoin, before banning ICOs in 2017 and closing down crypto exchanges in the same year, both moves prompted by a perceived financial instability in the digital asset sector.

Li said, in explaining more about what he meant by calling them investment alternatives: “Many countries, including China, are still looking into it and thinking about what kind of regulatory requirements. Maybe minimal, but we need to have some kind of regulatory requirement to prevent … the speculation of such assets to create any serious financial stability risks.”

Flex Yang, CEO and founder of Babel Finance, called the comments “progressive”, while Vijay Ayyar, head of business development at cryptocurrency exchange Luno said, “I think it is quite significant and is definitely different to their previous statements or positions on public cryptocurrencies.”

When asked about what he thought had changed China’s thinking following the PBoC announcement, Ayyar said, “Governments are realizing that it is a viable and established, yet growing, asset class and need to regulate it. China regulating crypto would be another massive boost to the industry in China and globally.”

At the moment, China is still trialling its digital yuan, which will eventually replace the cash and coins in circulation, and there is a rumour that the country may wish to trial with foreign visitors to the Beijing 2022 Winter Olympics.

As with everything to do with China and finance – watch this space!

A look at the Money-verse in 2028

Today money is going through an evolutionary process as I write. The choices the finance sector, and the consumer, make today will shape the future of money, and we can already see that the world’s sovereign currencies are under siege from cryptocurrencies and stablecoins.

Bitcoin has not yet brought about the massive revolution that some expected on the one hand, but on the other, if “governments and central banks can’t offer a sound version of the sovereign money for the digital age, their downfall could be tragic,” Marcelo M Prates writes at Coindesk.

Prates envisages a ‘ future fantasy’ scenario in 2028 that may become reality. Amongst other things he sees, “ see drones dropping bags of money in the neighborhoods most affected by the latest cyber-attack on the e-Gov platform.” Regardless of whether the attack is foreign or domestic, “nobody can transfer digital dollars or even check their FedAccount balance.”

In his view, this kind of disaster could happen if the government decided not to offer an offline account option. Why not? The government might believe “people would finance domestic terrorism with an offline FedCoin that could be transferred from person to person without identification.”

As a result, every time the e-Gov platform is attacked, the government has to send out bags of old dollar bills so that people can make payments.

There may also be a global Big Tech Alliance offering its own digital asset that launches before a government-backed one, and it could potentially result in a fall in demand for dollars, especially if inflation is rising at a record pace.

Governments will have to deal with the fallout from the huge expansion in spending during 2020. Nations’ debts will be soaring, and it’s foreseeable that printing more money might well become a response.

Banks will also be affected if an organisation, such as Prates’ Big Tech Alliance offers customers a compelling reason to empty deposits in traditional banks, and use it for the consolidation of other debts, thanks to favourable loans. The result would possibly be multiple bank closures.

This entire scenario is likely to happen due to central banks’ ambivalence about digital currencies. In Prates’ world, “Many believe that the breaking point came when the government insisted on having exclusive control over the digital ID scheme created to provide every American citizen and corporation with a single digital identity. The goal was to keep track of the vaccination progress amid different coronavirus variants and better target the relief money sent monthly.” However, centralization is rejected, as it “was seen as a further step toward the growing surveillance state.”

What is clear, even now, is that the technology available makes a multi-faceted Money-verse entirely possible, because as Prates says, “Money does not need to be controlled by a government or limited to a sovereign territory anymore.”

Central banks need to get their digital strategy right, or face the consequences in the not too distant future.

Dogecoin passion could prevent government crypto bans

Dogecoin, which has existed for a few years, is not a cryptocurrency of the usual kind. It’s a fun, ‘meme’ coin and Elon Musk, Gene Simmons, The Jonas Brothers and Snoop Doge have been having some fun with it recently. However, although it has no utility, Noelle Acheson, says “it embodies two key themes impacting institutional interest in crypto assets: the role of “fundamentals,” and the likelihood of successful government bans.”

Acheson asks if fun should drive value (Dogecoin is up 1,350% in 2021, and answers her own question with, why not? She points to GameStop (yes, again!) saying that the market’s understanding of ‘value’ is shifting. Matt Levine at Bloomberg summed it up: “Money and value are coordination games; what we use for money depends on the channels that we use to coordinate social activity. Once society was mediated by governments, and we used fiat currency. Now society is mediated by Twitter and Reddit and Elon Musk, so, sure, Dogecoin.”

Even Dogecoin’s founders have no idea why its success has continued some seven years after launching it. But they can’t remove it, or close it down, because Dogecoin runs on a public, decentralized blockchain that no one controls. So, it will probably continue to exist so long as people value its fun element.

It’s about passion

GameStop and Dogecoin both exemplify what community passion can achieve, and how it may potentially block government bans on crypto. For example, India tried to ban cryptocurrencies recently, but the community mobilised, created a hashtag and rallied its members to lobby government representatives. They pointed out that the country has 10-20 million crypto users, plus 340 startups and 50,000 employees in the crypto space.

Something similar happened in Nigeria where the central bank ordered banks to close the accounts of cryptocurrency users. There was a public outcry, and the central bank had to issue a press statement “reminding the public that the rule was not new, and that it was for their own good.” The central bank had to unblock accounts of 20 people involved in the #EndSARS movement, which was about the dissolution of a federal police unit with a reputation for fierce brutality. Acheson says, “The fact that the accounts were frozen in the first place is one of the many reasons seizure-resistant cryptocurrencies are rapidly gaining in popularity amongst Nigeria’s young.” It is also the case that Nigeria is gaining recognition as Africa’s Silicon Valley, and trading crypto assets is a way of life for many young people. They have new tools to work with and a growing disrespect for institutions. Because of the central bank directive, they are simply moving from exchanges to peer-to-peer channels. As a result, the politicians have taken notice,, and some prominent voices in government have spoken out against the ban. Other countries will be watching this with interest, because as Acheson warns, “the very act of attempting to repress cryptocurrency’s use could light a fire under a generational understanding of why it’s necessary.”

Biden puts crypto wallet regs on hold

Finally the inauguration of Joseph R Biden, 46th president of the United States took place on 20th January, and the whole event concluded without so much as a sneeze. He didn’t waste time when he sat down at the Resolute desk for the first time, signing a swathe of executive orders that overturned some of his predecessors more contentious policies, such as leaving the Paris Climate Agreement. As of yesterday the USA is back in, for which many are thankful.

However, there was something else he did that is of great interest to the cryptocurrency community. He put a freeze on FinCEN’s proposed crypto wallet regulations proposed by former Treasury Secretary, Steve Mnuchin, a known ‘hater’ of crypto. These rules would be detrimental to the crypto industry and were already seen as controversial.

Cointelegraph says: “The announcement came in a White House memorandum for the heads of various federal agencies, the Financial Crimes Enforcement Network (FinCEN) included.” As it remarks, the wallet proposal wasn’t specifically mentioned, but it comes under the general edict.

Mnuchin’s seldf-hosted wallet proposal, which alarmed the crypto industry, if passed, “would require that banks and money service businesses submit reports, keep records, and verify the identity of customers who make transactions to and from private cryptocurrency wallets.”

This goes against the basic philosophy of decentralization, and as Jack Dorsey said, “counterparty name and address collection should not be required for cryptocurrency just as it’s not required for cash today.”

Other critics of the proposal also pointed out that anyone using smart contracts, as one example, couldn’t comply with the proposed regulation, because “smart contracts do not contain name or address information.”

Now we must wait and see what Janet Yellen, the new Treasury Secretary will do. She is not known for being a massive fan of crypto, but some industry insiders see her in a positive light. Compound Finance General Council Jake Chervinsky is optimistic, saying: “We fought hard & earned the right to take a breath & reset. Janet Yellen isn’t Steve Mnuchin. I’m optimistic.” He believes that unlike Mnuchin, Yellen will be more open to learning about crypto and listening to its experts when it comes to making decisions about new regulations. Furthermore, as everyone has been pointing out for weeks now, Biden appointed Gary Gensler to head up the Securities and Exchange commission, and he appears to be much more sympathetic to the idea of decentralization than those who went before him.

It’s early days, but it would seem that we are entering a period of compromise, rational thinking and cool heads, and this may just be what the US crypto industry needs to progress.