28.11.2019 – Special Report. Digital currencies are under pressure after the recent raids in China. There are also threats from Europe and the USA. After all, Bitcoin, Ethereum and co. are nothing more than a declaration of war by internationally networked participants against the state’s money monopoly. And therefore unacceptable for politics. The case of China is particularly impressive proof of this.
Bitcoin bloodbath
The past few weeks have demanded a lot from the Bitcoin bulls: the world’s most popular digital currency slipped to 5,936 euros on Monday. In June, the interim high was 11,340 euros. Recently a slight recovery set in, Bitcoin changed hands for around 6,800 euros.
As the blog Coin Dance stated with reference to the hash rate – the computer power that keeps the Bitcoin network running – the community by no means capitulated despite the attack in China. Exact figures are not available because cyberdevisen are flying under the regulatory radar. But China is considered the most important market in the world – the latest events in China have had a signal effect accordingly.
The empire strikes back
The blog CoinTelegraph reported last week that crypto companies operating in China have recently been exposed to increased search pressure. Last Thursday, the authorities allegedly stormed the offices of Binance and Bithumb, which both denied. The publication “Sanyan Finance” reported that 39 companies in Shenzhen had been raided. In addition, the People’s Bank of China announced on 21 November that it would now step up its action against the industry. In addition, the currency watchdogs warned investors against investing in this sector. Miners and traders have been targeted. Beijing had recently fired suspicions about the introduction of its own, state-supported crypto currencies – which is probably why the uncontrollable competitors are now to be eliminated.
Wasn’t meant that way
And yet it had looked so good for the crypto bulls precisely because of China at the end of October. Bitcoin, for example, attracted just over 10,000 dollars or 8,359 euros when China’s President Xi Jinping praised blockchain technology to the skies, according to the state television station CCTV. The People’s Republic should play a leading role in this sector. Was China back on a pro-crypto course? Hardly: As the industry blog BTC-Echo stated, Xi was more interested in blockchain technology than Bitcoin. We see it that way: Beijing wants a controllable E-Yuan, but not all the other crypto currencies.
Beijing takes things seriously
Only last summer, according to CNBC research, China tightened its exchange rate against digital currencies. As early as 2017, China had banned the sale of “initial coin offerings”. In August 2018, the authorities – including the Chinese central bank and the state financial market regulator – warned against illegal capital collections for cryptocurrencies; the Chaoyang business district in Beijing banned cryptos altogether.
At the same time, according to CNBC, local Chinese governments invested around 3.6 billion dollars in cryptos between 2016 and mid-2018. At the same time, trade with Bitcoin remained largely permitted in China. Nevertheless, many Chinese companies had moved their headquarters abroad, but continued to work in the People’s Republic. And with the brisk interest in the USA, Japan and South Korea, Bitcoin increased to 19,000 dollars and 16,376 euros respectively at the end of 2017.
Fight against capital flight
It is doubtful that such heights will be reached again. Because anyone who knows a little about China or other autocracies knows what politics is all about there: Above all, Beijing wants to stem the flight of capital. And that runs very well via Bitcoin. Many Chinese are rightly afraid of a devaluation of the yuan – which is why they are looking for alternatives that they can take out of the country. Customs can curb the smuggling of cash or coins. International bank transfers are subject to capital market controls. Digital currencies, on the other hand, are completely beyond the control of the state – because thousands of computers all over the world simply bypass supervision.
A disaster for politicians – Beijing would have liked to have invested the billions flowing out of the country at home. And also drained the corruption swamp. The situation is similar in Russia, where vast sums are transferred to London or Switzerland. As the FBI has already warned, income from criminal activities is also being processed via digital purses. Cryptos also stand in the way of state-controlled money supply control – in China, Russia, Europe or the USA the means of choice for stimulating the domestic economy.
You shall have no money gods beside me
Blockchain technology offers politicians a way out of the crypto misery. That’s what Xi Jinping said: “If you meticulously list via E-Yuan who has transferred what amount of foreign exchange, the cash drain is over. It’s no coincidence that Turkey has just announced plans for the digital lira – it would probably put an end to the consumption of the lira. The first tests are scheduled for the end of 2020, and the Turkish e-currency should be introduced by mid-2025.
The discussions in Germany about the abolition of cash are heading in the same direction, by the way. Those who have notes in their pockets will be able to pay tax-free black workers; those who invest in coins will be able to hide them from the tax authorities in Switzerland. No politician wants that. And even on the other side of the Atlantic, Facebook’s plans for Libra or Stablecoin have caused eyebrows to rise. Specifically, the Federal Reserve warned in its Financial Stability Report on 15 November that an unregulated Stablecoin would entail risks.
Price target zero for all cryptos?
Our conclusion: We can prepare ourselves for a global backlash of the regulators against Bitcoin and Co. Politicians will not allow a parallel currency to exist on the Internet for all time. Nobody knows how long the campaign against the now around 100 digital currencies will take. Especially since it is difficult to sink a decentrally organized armada of global servers. But one country after another is likely to dry up the market and introduce its own digital currency. Ultimately, this amounts to the exit of all alternative offers.
Bullish counter-movement possible at any time
Of course, the demise will be accompanied by escapees to the top. Every time a big bank threatens to topple over and investors want to save their money, Bitcoin and co. will attract. Whenever it turns out that digital regulation is not progressing because of technical hurdles, prices will rise again. Especially since investors’ longing for money that cannot be manipulated by the central banks is likely to continue in the wake of the zero interest rate policy.
In addition, a lot of old money could still flow into the new digital world. The former Goldman banker Mike Novogratz has just launched two new crypto funds, as Bloomberg reports. His Galaxy Digital Holding focuses on solvent investors with 2 to 25 million in free capital. Galaxy will specifically target those investors aged between 50 and 80 who have stayed out of this market so far. However, it is questionable whether conservative investors will invest in such a volatile asset.
Whatever the outcome, the Bernstein Bank will keep an eye on this exciting topic for you and wish you successful trades!
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