China has well and truly made clear its intentions with regards to cryptocurrency. The Wall Street Journal has reported that the Chinese government has requested that all businesses related to the blockchain should immediately cease operations and unwind all existing transactions. This is additional to existing measures already in place to stop bitcoin exchanges actively operating within China’s borders.
Critics have been swift to condemn the actions, with the harshest critics calling them “Draconian measures designed to increase already unreasonable controls in the financial markets.” However, it’s easy to see why, when given the opportunity, a government would seek to reduce the number of variables involved in an increasingly unpredictable global economy.
The obvious losers here will be small exchanges and growing businesses who will no longer be able to operate within China – which was once deemed to be an ideal market for blockchain technology; with a technologically advanced and well healed middle-class, the country should have been the ideal location for cryptocurrency innovation.
The next move from China will likely be the consolidation of blockchain technology within state-controlled entities and restrictions on how those types of technologies can be used. It’s an interesting conundrum and more of a philosophical argument than an economic one – which is more important; maintaining the spirit of a free market, or ensuring the long-term stability of the market itself? Of course, China is not a free capitalist market and uses that to its advantage as often as possible. Capitalist governments must become frustrated at not being able to act in a similar manner when threatened by technology such as bitcoin, which has the potential to create a secondary currency bubble. Of course, the great blockchain experiment may continue to yield phenomenal results and China may be the country to miss out, but if everything should go wrong, then China once again will be one of the few countries properly protected from the fallout.