Beijing fears other side of this coin

Editorial | 11 Sep 2017

At the start of last week, the mainland outlawed all initial coin offerings, a means used by some companies - mainly involved in technology - to raise funds by issuing virtual monies to subscribers who expect the cryptocurrencies to grow into a fortune in time.

Then, days later, mainland media reported the authorities planned to shut down exchanges where bitcoins and other cryptocurrencies are traded. Policymakers are apparently taking the issue seriously, ahead of the 19th plenary session of the Chinese Communist Party in mid-October.

This is characteristic of China. Whenever mainlanders get too excited about something, anxious cadres are bound to spring into action to cool down the fever. If bitcoin and its like are Western inventions, mainlanders are just crazy about the virtual monetary game of the 21st century.

Generally speaking, Hongkongers are less confident of electronic payments. But mainlanders are different. In Guangzhou, Shanghai, or any other city you name, it would be extremely inconvenient - if not impossible - to live without an electronic wallet. Some local shops have even stopped accepting cash.

So, for mainlanders, bitcoin and its cousins are nothing to fear, but rather a short cut to getting rich.

Take bitcoin, which has a large circulation, as an example in this regard. It was worth 0.003 US cent (0.0234 HK cent) when it was invented in 2009, and its creator reportedly bought two pizzas with 10,000 Bitcoins. Its value has boomed to more than US$4,000 each.

By design, production of bitcoins will be capped at 21 million by 2040. As of now, there are 16 million in circulation.

What's occurring in the north is characteristic of the mainland. Everything that's too hot must be cooled down for the sake of stability. The same happened to the property and stock bubbles. Could Beijing's ban be a signal that the bitcoin bubble is about to burst?

Because each bitcoin is encrypted and unique, trading doesn't refer to who actually owns them, but to the bitcoin's unique encryption. Therefore, it has also become the preferred means for illicit capital outflows to bypass foreign exchange controls. In the dark web, it's also the currency used by criminal syndicates, drug cartels, etc.

Could the crackdown be part of Beijing's exercise to stem capital exodus? No matter what, the move will have such an effect.

Money-wise mainlanders may have already noticed this, redirecting their investment to yuan-denominated assets from bitcoins, which financial world legend Warren Buffett said in 2014 was nothing but a mirage.

Since Beijing's announcement outlawing initial coin offerings, the yuan has spiked upward against the US dollar.

Some analysts estimated that prior to the clampdown, the mainland accounted for some 20 percent of global bitcoin trading.

The mainland announcement was concerted, involving the People's Bank of China and an array of government departments.

The cryptocurrency history is very short - it's only been eight years since the first bitcoin came into being. Since then, a variety has been created, such as Litecoin, Ethereum, Ripple, Dash, and Monero. It's hard to say which one will dominate in the end.

Should Hong Kong authorities catch up with a view to regulating them?

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