With both India and Turkey cracking down on bitcoin, is China set to warm to the cryptocurrency that it has been waging a not so quiet capital control war with for the past four years? In a dramatic and material shift in Beijing’s tone after a crackdown on cryptocurrency issuance and trading nearly four years ago, CNBC reported that China’s central bank is now calling bitcoin an “investment alternative."
Industry insiders called the comments “progressive” and are watching closely for any regulatory changes made by the People’s Bank of China.
"We regard Bitcoin and stablecoin as crypto assets ... These are investment alternatives,” Li Bo, deputy governor of the PBOC, said on Sunday during a panel hosted by CNBC at the Boao Forum for Asia.
“They are not currency per se. And so the main role we see for crypto assets going forward, the main role is investment alternative” he added.
Whereas back in 2017, China was the world’s largest buyers of bitcoin as local savers and speculators used crypto to bypass China's great capital firewall, Beijing promptly cracked down on this practice and not only banned so-called initial coin offerings but also shut down local cryptocurrency exchanges. The moves were prompted by concerns about financial stability. As a result, most of the recent activity has been driven by the US, not Asia... but that could soon change.
As investment alternatives, "many countries, including China, are still looking into it and thinking about what kind of regulatory requirements. Maybe minimal, but we need to have some kind of regulatory requirement to prevent ... the speculation of such assets to create any serious financial stability risks," Li said. He added that the central bank will keep its current regulations on cryptocurrencies.
As CNBC notes, Li’s latest comments highlight a potential shift in tone from the PBOC.
Flex Yang, CEO and founder of Babel Finance, called the comments “progressive” in an interview with CNBC on Monday. Babel Finance is a crypto financial services company.
"I think it is quite significant and is definitely different to their previous statements or positions on public cryptocurrencies,” Vijay Ayyar, head of business development at cryptocurrency exchange Luno, told CNBC by email.
“Governments are realizing that it is a viable and established, yet growing, asset class and need to regulate it. China regulating crypto would be another massive boost to the industry in China and globally,” Ayyar said, talking about the motivation behind the PBOC’s shift in tone. To be sure, China is not alone in changing its mind about bitcoin: over the past 4 years, Bitcoin has transformed from being purely a retail-favored asset and has become more mainstream in the financial world, gaining interest from institutional investors. Major corporations such as Tesla and Square in the U.S. have purchased large sums of bitcoin.
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One possible reason for the huge shift in Chinese sentiment: as we reported two weeks ago, China has started to encourage more capital outflows to ease pressure on the Yuan.
"Amid the continued appreciation of the yuan since June 2020, China’s foreign exchange policies have focused on increasing the flexibility of the exchange rate, expanding capital outflows and controlling capital inflows,” Guan Tao, chief global economist at BOC International Co. Ltd. wrote in a Feb. 23 report (link in Chinese) on the preliminary balance of payments data. He said he expected this foreign-exchange policy mix to continue as the “orderly expansion of capital outflows is an important policy tool to cope with the appreciation pressure on the yuan."
Or as we said on April 3...
In other words, don't be surprised to see a fresh flood of Chinese real-estate buyers in Vancouver, California and the Tri-State area. Also, don't be surprised to see a reversal in China's long-running feud with Bitcoin as Beijing realizes that there is no better way to send money offshore than through crypto.
Two weeks later this is what appears to be taking place.
Separately, a reminder that China is working on its own digital currency called the digital yuan, and is widely seen as the frontrunning among all of its central bank peers in the transition from fiat to digital. The aim is to replace cash and coins in circulation.