Most of our concern about bitcoin and other cryptocurrencies has been the fact that they have no intrinsic value to fall back on when the bubble pops. Now another factor has been added to the bitcoin equation. Regulators in China and South Korea are talking about shutting down cryptocurrency exchanges. That news threw bitcoin and others into a tailspin as investors pulled their assets from the world of cryptocurrencies. Nations like China are trying to keep wealthy investors from moving assets offshore. Unfortunately for the governments, investors can use bitcoin to move millions without government oversight, taxes or regulations. As bitcoin and others have grown they have become an issue for governments across the globe and regulation of the cryptocurrency world is overdue. For those with investments in this area will bitcoin survive the crackdown?
CNBC notes that bitcoin plunges below $12,000 on the news.
Bitcoin plunged to a six-week low Tuesday after comments from South Korea’s finance minister renewed worries about a crackdown in one of the largest markets for digital currency trading.
On Monday, Bloomberg reported that authorities in China were planning to block domestic access to Chinese and offshore cryptocurrency platforms that allow centralized trading. Regulators will also target people and companies that provide market-making, settlement and clearing services for centralized trading, the publication said, citing unnamed sources.
And on Tuesday, a Chinese central bank official reportedly said that authorities should ban the centralized trading of digital currencies, adding weight to concerns of further suppression of the country’s cryptocurrency market.
People first got into bitcoin because of the argument that it was a new way to move money and hold assets efficiently and privately. Then, as the value bitcoin grew it became a mania as people emptied their bank accounts and put second mortgages on their homes to get in. People who are so desperately leveraged will be the first to bolt for the door when it appears that various crackdowns will drive the price down. That sort of rush for the exits tends to accelerate as the price falls turning the demise of assets like bitcoin into self-fulfilling prophecies.
Will There Really Be a Crackdown on Cryptocurrencies?
A valid question for folks with assets tied up in bitcoin and other cryptocurrencies is if various governments will really close centralized cryptocurrency exchanges. China is likely to take action and the reason will be its concern about capital flight and the damage that loss of investment capital would cause China’s economy.
The business news is full of reports and speculation about capital flight out of China. Foreign investment was essential to China’s rapid growth over the last decades. Foreign investors are pulling money out and wealthy Chinese are moving their money offshore. Will capital flight kill the Chinese economic miracle?
China’s foreign currency reserves have shrunk at the same time that its public and private debts are soaring. Many who made their fortunes on China’s rise as an industrial power are hedging their bets and moving money offshore. This comes at a bad time for China because they need to increase internal investment and liberalize their economy. That will not happen if there is a shortage of cash. One of the routes out of China for capital is the world of bitcoin. Thus it is likely that China will shut down exchanges or at least demand more transparency in order to control capital flight.