Banning Bitcoin is Admitting Defeat
In the midst of a potentially devastating property crisis, China implemented a Bitcoin “ban”. In the context of war with Ukraine and severe economic sanctions, Russia’s central bank proposed a similar course of action. We believe these aggressive measures are symptomatic of Bitcoin’s growing importance in the global financial system. One does not ban anodyne phenomena. One bans threats.
We put the word “ban” in inverted commas because a Bitcoin ban is as technically possible as an internet ban. It is a legal provision that is almost impossible to implement on a technical level. What a “ban” actually achieves is the destruction of one’s position in a booming industry. It forces Bitcoin miners to pack their equipment and move jurisdictions. This move, at best, hinders a country’s role in a new revolutionary technology and, at worst, inflicts geostrategic self-harm. A Bitcoin ban is the strategic equivalent of banning the manufacture of computers 40 years ago and as useful as Caligula declaring war on the sea.
In the case of China and Russia, the “banning” of Bitcoin, specifically, seems to be a desperate measure to halt capital flight. China already operates tight capital controls and the only wide-open door that remained was Bitcoin. Bitcoin’s growing popularity made a capital flight a real possibility in the eventuality of a devastating economic crisis caused by the collapse of the Chinese property market. As a reminder, the Chinese property developer, Evergrande, and its peers, have been in a precarious financial position for months. Their liabilities are in the hundreds of billions of dollars. Their default would lead to a serious economic crisis in China that would reverberate across global financial markets.
The other reason for wanting to hinder Bitcoin in China is the government’s plan to introduce a central bank digital currency (CBDC). A CBDC strengthens a government’s grip on monetary power by allowing it to issue new money directly to citizens, remove money from circulation and even issue money with expiry dates. CBDCs are the antithesis of Bitcoin. That is why tough legal measures have to be taken to handicap Bitcoin. Otherwise, citizens will likely opt for the superior alternative.
In January 2022, Russia’s central bank recommended a similar ban on all crypto transactions and mining. These comments were made in the context of looming war with Ukraine and the threat of heavy economic sanctions from the West. Assuming the worst, Russia could find itself cut out from the SWIFT payment system, the US dollar and the euro. Capital trying to flee a collapsing rouble, in this context would look for the easiest escape. This would be provided by Bitcoin. To prevent this nightmare scenario, it makes sense to strengthen one’s monetary grip and ban the uncontrollable alternative, which is Bitcoin. Interestingly, Putin and Russia’s finance ministry pushed back on the central bank’s recommendations, citing certain advantages Russia had in the sector. These advantages are Russia’s vast energy resources, low temperatures and its pool of talented programmers. Contrary to China, long-term considerations seem to be clashing with short-term necessities.
What these developments indicate to us, is that Bitcoin is becoming an unstoppable force in global finance. Aggressive measures to curb its use during periods of crisis indicate the importance it has already garnered. We think this importance will only continue to grow as the unstoppable tide of technology continues forward and adoption accelerates. Global macroeconomic failures will help this acceleration, as an increasing number of people will lose trust in their governments and adopt Bitcoin.
For a deeper analysis of Bitcoin’s role in geopolitics, please read our full research piece here:
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