Goldman Sachs recently reported the yuan is involved in over 80% of bitcoin-to-traditional currency transactions. In a Bloomberg article, William Pesek suggests that China might crack down on its citizens use of the crypto-currency. While speculation accounts for a sizable portion of Chinese bitcoin activity, Pesek suggests that remittances and money laundering are driving factors as well.
I do wonder if the rampant attention towards Bitcoin creates any destabilizing factors for the yuan and the Chinese government’s control over the economy. If the use of Bitcoin – or at least the thought of it – becomes pervasive, what might stop people from putting their trust in a developing nation’s currency. Of course, that is a large hypothetical, but China’s aggressive stance at least suggests they won’t tolerate Bitcoin as a way to avoid government oversight.
http://www.bloombergview.com/articles/2015-03-11/china-can-t-get-enough-bitcoins
With bitcoins trading at well under $300, the problem may solve itself as investors, er, speculators head for the exit. Cryptocurrencies aren’t particularly useful, unless you’re willing to pay a very high price, both in transaction costs, illiquidity and capital losses, to avoid detection. That’s particularly useful to … the drug trade and other illegal activities that involve large amounts of cash and have very high margins.
This is just one more version of the Ponzi schemes about which Mr. Miller spoke. China’s savers are naive, and scammers are having a field day. Bitcoins are just one such, a fundamentally worthless item that sooner or later will be worthless. (I’ve blogged about this on Autos and Economics.)