Silk Road couldn’t kill Bitcoin, can China?
It seems like the days of December all over again. After taking Bitcoin to spectacular highs, the government of China had finally stepped in to put the curfew to the party. Tomorrow in April (April 15), it looks to be an ongoing repeat telecast, except for a bitcoin battered from the collapse of mtgox (and an ongoing Neo & Bee saga)
Gizmodo had last year put an article on What will kill Bitcoin first?
Almost exactly two years ago, Wired published a feature about Bitcoin, comparing the cryptocurrency to “overhyped Silicon Valley IPOs.”
In many ways, Bitcoin has never been stronger than it is right now. The value of a single Bitcoin is now hovering at a jaw-dropping $400.
But the jig is almost up. Foreign Policy just published a feature begging the question: “Can the skyrocketing cryptocurrency survive when all of D.C. is looking to tame it?” As the government turns its regulatory gaze in Bitcoin’s direction, and the exchange rate seems to spiral out of control, there is indeed a reckoning coming, and it’s coming from all sides. The only question now is what will hit first.
—the value is soaring and awareness is spreading—
Contrary to that, Bitcoin seemed to have rolled along just fine with the changing regulatory landscape, although the price has also rolled a slow way down.
Today, the value is dropping like a rock, and yet awareness and and take-up is skyrocketing.
Bitcoin has survived both the Silk Road, and Mtgox. Surviving silk road was a reason for some to buy in, and surviving mtgox was the reason for an investor to buy in.
Silk Road’s clones were unable to replicate the original Silk road, as few of those inclined were able to resist making off with a heist of bitcoin.
According to Bloomberg, the dread pirate was no trigger-happy junkie. The silk road became bandied around as a stereotypical image of a bitcoiner. Subsequently, with a followup arrest of Charlie Shrem, people outside the bitcoin world (from finance to media) were quick to point out the hypocrisy in US enforcement. Bit players of $1million were getting jail time while the big Banks like HSBC dealing in countless billions (and mexican drug money with its brutal guns and war) got off scot-free. The banks were too big to jail.
In the long run, it showcased the antifragility of bitcoin. It was now free of the drug money laundering overhang with the demise of the silk road, and the inequity of america’s double standards were brought to the forefront.
Bitcoin adoption soon took off, with Overstock.com and Tigerdirect as some notable retailers, putting pressure on Amazon. All the more so when they decided pass their cost savings on to the consumers. Venture capitalists and investors famed from their tech successes also jumped in. Eventually, Twitter’s Jack Dorsey’s Square would also come to embrace it (a payments solution).
The question now, is if Bitcoin will survive China’s oscillating stance, if the economic giant that brought bitcoin price from 265 usd to 1300 usd will be the very same force that swings it crushing back down.
A high price isn’t necessarily a good thing for bitcoin in the short run, as it tends to attract speculators who get flushed out easily. In China, early attempts to introduce practical applications (baidu jiasule, property purchases) were quickly stamped out by the government, making the domestic scene essentially a speculative activity for those who did not have overseas operations. The miner’s fee part of the equation also tends to be reflected in dollars, until such time in which it gets reduced. Perhaps the entire China events is such an example of a high price drawing speculative hands.
Compounding this is that bitcoin is experiencing the opposite of the Bernanke put bad news is good news effect. When there are good news for bitcoin in a new takeup, prices tend to head south. For example when Tigerdirect accepted, prices took a nose dive. The Gyft CEO has offered his own take, as the merchants requires the cash to meet their own supply chain payment demands, so the payment processor has to clear the purchases onto the exchanges, which means plenty of sell orders into a demand that is at best mildly higher. Plenty of people who stocked bitcoin has a place to support, or to buy some stuff for their lives. This creates a lot of “selling” pressure on good news.
Furthermore, much of institutional activity (that gets covered pretty often) has been taken off market. The funds don’t want to be front run (or at the least pushing prices) by Algos and even HFT (High Frequency Trading), and the ASIC miner’s like the futures/forwards style contracts resembling the gold miners (and other miners). As a result, where they can, trades and movements take place off the market, in the dark such that we do not know what the real activity is like. And this is even as HFT algos flub up the volume in the conventional exchanges.
We have seen over the past few months following the China takedown that around the world, excluding China, plenty of places, merchants and entities have started accepting bitcoin or have plans to do so. It has also made for newsworthy coverage numerous times, and here bad publicity is good publicity following the mtgox as more people are exposed to the concept of a global cryptocurrency that is beyond borders. While it does no favors to the price, the power of the bitcoin protocol as a concept is only enhanced, with parallels to the antifragility of the internet’s advent. Many of the Bitcoin Companies and Tools 1.0 today may not survive (again reminiscent of internet firms), but the Bitcoin protocol cannot be uninvented!
CNBC asked last year if China could make or break bitcoin.
“When you talk about Bitcoin in terms of absolute value and volume it’s still not that big… In the Chinese government’s view it’s still not on the radar, they don’t care about it,” BTC China’s Yang said.
Would this still hold true today?
The china credit crisis is something that is slowly sweeping through China. The analogy is perhaps their own Lehman moment, which they are trying to bubble pop in a controlled detonation. The sheer size of their shadow banking bubble is immense, and many possible trust defaults are lined up in dominoes of epic proportions. They’ve also frozen QR code mobile payments/semi banking of even their own domestic companies Alibaba’s Alipay and Tencent’s Tenpay (familiar names for the December china bitcoin funding sources). They probably have more on their minds than going on a crusade against bitcoin.
There is also one more interesting part of the equation underlying China’s Tech v Bank war. Do you know what is the second largest payment network in the world after Visa? It’s not mastercard, it’s not paypal, it’s China’s Unionpay, as reuters points out, it also has many of the head honchos and entrenched interests of China’s banking sector. It is also the main way, and most efficient way, of bypassing capital controls or laundering money out of china (not bitcoin, thankfully). The Credit Crisis and Tech v Bank struggle is probably taking the front and center of their Central Bank’s todolist, with bitcoin perhaps piled after Alipay and tenpay. They’ll probably want to halt it to solve their pressing concerns first, and come back to look at it another time.
But this isn’t actually bad, because along with the mtgox slow collapse, the china overhang has been the main cloud hanging over bitcoin even as many other positive developments have gone other way. If the PBOC (china central bank) takes China speculators out of the system for a while, that could well lead to some healthy progression based on the advances in practical applications of bitcoin as opposed to speculative froth mirroring that of facebook’s whatsapp and oculus rift acquisitions, or twitter frenzies and other mark to infinity tech IPOs.
As for the ATMs that are possibly the “cause” for today’s spike, it isn’t too big a step for PBOC to extend deposit controls onto ATMs. But the ATMs in themselves would do a lot to advance Bitcoin’s cause in China. The real issue however, in my humble opinion, is that certain players of size are simply using any China rumors and news to cycle pump and dumps and dumps and pumps for their own profit margins. A look at fiatleak shows China vacuuming up bitcoin movements despite all that has been going on, and the ever China bans bitcoin, bitcoin not banned by China, China bans bitcoin rinse and repeat hysterical frenzy. It would be perhaps better if China simply cuts it off outright for now.
Perhaps it would be wise to remember Gavin Andresen’s caution not to invest into bitcoins any more than you can lose. April 15 does seem a prime time for manipulators to rig the markets into huge language barriers where one cannot tell what is going on in China, and perhaps even for those inside being unable to discern central bank motives.
Wait for the China storm to blow over, just as the mtgox debacle cloud clears over, which will place one more notch into the antifragility of bitcoin. It will be all the more healthier, and reports of its death will be once more greatly exaggerated.