China once dominated the bitcoin markets, accounting for over 90% of global trading. But in September, its central bank banned initial coin offerings (ICOs) and stopped cryptocurrency exchanges from serving local customers. Looking back at the crackdowns, Pan Gongsheng, a deputy governor of the People’s Bank of China, believes Beijing made the right decisions.
Speaking at a financial forum in Shanghai over the weekend, Pan was asked to comment on bitcoin’s historical bull run, which saw the cryptocurrency’s value surpass $11,500, jumping more than 10-fold so far this year. Chinese media quoted him as saying (link in Chinese):
If we had not shut down bitcoin exchanges and cracked down on ICOs several months ago, if China still accounted for more than 80% of the world’s bitcoin trading and ICO fundraising, everyone, what would happen today? Thinking of this question makes me scared.
Pan went on to share a recent column by economist Éric Pichet in the French newspaper La Tribune (link in French). In it, Pichet, a professor at the Kedge Business School in France, makes a familiar argument that bitcoin is a bubble waiting to burst, just like the tulip mania in the 1600s and the Internet bubble of 2000. He predicts that bitcoin will die of a grand theft, a hack into the blockchain technology behind the cryptocurrency (which actually is unlikely), or a collective ban by global governments. Pan cited lines from Pichet to wrap up his talk:
As Keynes has taught us, “the market can remain irrational longer than you can remain solvent.” There is only one thing left to do: Sit by the river bank and see bitcoin’s body pass by one day.
Pan’s remarks are a reminder of China’s tough stance on speculative investment tools. Beijing fears social chaos triggered by small investors’ losses in murky financial markets. Recent examples have included peer-to-peer lending and regional commodity exchanges. Bitcoin trading is no exception, as the September crackdowns demonstrated.
After the measures, Chinese exchange and wallet services shifted their activities overseas, and local investors headed for peer-to-peer marketplaces to continue their trades. Rumors have circulated for months that Beijing will eventually ban mining and over-the-counter trading for cryptocurrencies altogether, though so far there’s been little sign that authorities will go that far.