China says no to bitcoin currency
For now they left hope for e-commerce
As we have been warning in the past few days, countries are in no way eager to accept bitcoin for mass adoption. This was confirmed by today’s announcement by People’s Bank of China that Bitcoin is simply a virtual commodity and “isn’t a currency with any real meaning” and that it officially bans financial companies from Bitcoin transactions.
Why?
FT reports:
The Chinese regulators noted three main risks. First, they said Bitcoin was an unsafe investment because the amount in circulation is small and can be easily controlled by speculators, making it highly volatile.
Second, because it is a largely anonymous product with few controls on it, they said that Bitcoin makes money laundering easy and can be used to support terrorism.
Third, they said there was a risk that it could be used by criminal organizations, noting that Bitcoin had been used internationally for the purchase of drugs and weapons.
“We have clearly stipulated that at the present moment all financial institutions and payment institutions cannot develop any business related to Bitcoin,” the central bank said. The regulators said that any websites serving as platforms for Bitcoin transactions would have to provide detailed information about their users and report any suspicious activity.
Still China left some hope for people holding Bitcoin:
The Chinese government stopped short of banning Bitcoin altogether, saying that as an online product people were free to buy and sell it at their own risk. But it highlighted many dangers associated with it, including money laundering and criminality. From a systemic perspective, it noted that the one saving grace was that the amount circulating in the economy was too limited to pose a real threat.
“Although there are people calling it a ‘currency’, it is not issued by the monetary authority, it does not possess the attributes of a currency such as legal repayment and enforcement abilities,” the central bank said in a statement explaining the notice.
The Chinese government stopped short of banning Bitcoin altogether, saying that as an online product people were free to buy and sell it at their own risk. But it highlighted many dangers associated with it, including money laundering and criminality. From a systemic perspective, it noted that the one saving grace was that the amount circulating in the economy was too limited to pose a real threat.
The market reaction was clear. And understandable as China adoption of bitcoins on their web properties was one of the most prominent arguments backing future bitcoin adoption. Now they did not ban using bitcoin in e-commerce, but they showed how easily they can regulate the adoption rate.
So China in one move limits the hopes of any mass adoption and at the same time explained how the anonymity unique selling point for Bitcoin will be meaningless when going out into the cash, as authorities will propose regulation upon them.
Why China went first against Bitcoin?
First of all every major nation is striving to control every transaction so it can be taxed. Digital currency perfectly fits this but only if it is under their control and so they do not say digital currency has no meaning, but suggest you need some authority backing it up.
How would any internal national tax agency trust any bigger company proving their financial results if you can’t confirm for sure how many anonymous wallets you hold?
It is unacceptable for them to loose control over the one and only thing backing up the faith in all major fiat currencies. And the faith is based on trust that nations can enforce taxation upon companies and so back up fiat currency with future revenue streams.
Furthermore there is a huge risk of market concentration:
Bitcoin is not a legal tender and everyone will need to get into cash as companies are obligated to pay taxes in fiat currencies if they want to engage in bitcoin market.
So if Google, Apple, Walmart or any other bigger player wants to join, then they would need to go into cash periodically. Without question.
Until shareholders expect to be presented with bitcoin statements when announcing quarterly results and revenue authorities would need to have a centralized reference benchmark exchange rate for taxes calculations.
At the same time these companies have huge loads of cash on hand to buy the whole market of bitcoins several times.
Apple’s $147 billion cash pile accounts for 10% of all U.S. corporate cash
Their primary motivation will be not to sell the most in bitcoins, the first intention would be to have the maximum share of bitcoin market.
Why?
That way they can control their profit margins and profit margins of other competitors using bitcoin. So they don’t even need to participate in selling goods for bitcoins and they can corner all others using bitcoins.
