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China, The US, And Crypto: The Dawn of a New Financial Order

14 November 2019

There are lots of conclusions to draw from China’s latest show of affinity for blockchain technology, and its immediate effect on the price of bitcoin. The same is true of the events that trailed President Donald Trump’s tweets addressing his perception of bitcoin, and its place in the American economy. It is safe to say that these two events connote important points in the ongoing crypto adoption narrative, and the roles economies are playing in its establishment.

On one hand, we see one economy fight tooth and nail to retain its financial leverage on the global market while restricting change. On the other hand, another recognizes the revolution at hand, and it is doing all it can to stay relevant in the coming years. Although it remains to be seen the outcome of the decisions separately embarked by both parties, there are, however, reasons to assume that they will inevitably trigger different economic results for the countries in question.

As such, this article looks to spell out the consequences of the path China and the US are treading, as regards crypto technology and its impact on the crypto market.

An Overview of The United States’ Take on Crypto

The United States played varying roles in the emergence of crypto. For one, it was once a fertile ground for ICOs, as it contributed immensely to the boom that saw bitcoin, and other cryptocurrencies, surge to all-time high price figures. Then, there is the crucial contribution of an America-based individual in the establishment of bitcoin as a tradeable asset. The story reads that a bitcoin holder, in the state of Florida, decided to do the unthinkable and pay for a commodity with a currency that was yet to find its footings – bitcoin. This event happened in 2010, and the commodity in question was 2 pizzas that are worth 10,000 BTC at the time of the transaction.

That said, it is the actions of this unsung hero that set bitcoin on a path to becoming arguably the most talked-about economic disruptor in the world. It is worth mentioning that the said 10,000 BTC paid for those pizzas in 2010 is worth $80 million today. In light of the many times US-based crypto enthusiasts have contributed to the growth of the crypto market, one can assume that the crypto community in the country is home to progressive thinking men and women that will keep pushing for positive technology disruptions.

However, it is without any doubt that entities located in this region have also stood as stumbling blocks for crypto. The first culprit that falls into this category is the country’s mainstream media. At different stages of crypto’s short history, Bitcoin and other cryptocurrencies had to contend with negative press. Note that some negative media coverage was warranted, especially the ones that explored the regulatory uncertainties that once ravaged the space. There were, nevertheless, times when publications went out of their way to taint the viability of cryptocurrency for no just reason. When this was the case, bitcoin suffered momentarily and bounced back like it never happened.

Secondly, regulators and the regulatory structure adopted in the US have done little to help the crypto space. From what we have learned so far, it is safe to say that whenever cryptocurrency makes a positive move, as regards its legal standing in this region, it is almost always succeeded by two or more steps backward. Experts claim that this debacle is a result of the unclear regulatory model governing the financial system of the country.

The United States distributes regulatory responsibilities to each state. Hence, in addition to complying with federal regulatory frameworks, crypto-related firms must also factor in state-level regulations to ensure that they are compliant across the board. There wouldn’t be an issue, if the regulatory framework, each jurisdictive body adopts, had strong correlations. Instead, the regulatory structure exhibits certain unconformities that reportedly makes doing business in the US a tad difficult. This assertion is evident in the fickle licensing culture, which is becoming popular in the crypto space in America. We often hear about how crypto firms secure licenses from regulatory bodies, only to discover that it does little to establish their legality in states with similar licensing bodies but different licensing requirements.

Unfortunately, even the more established crypto firms in this country like Coinbase have felt the brunt of this lack of conformity, let alone the thousands of new and inexperienced startups that lack the appropriate tools to navigate the region’s torrid regulatory scene.

Nonetheless, this assertion does not take anything away from the positives of the actions of crypto regulators. Regulators swayed into the crypto discussion at a time when crypto scams were beginning to thrive. Though there is a long way to go before we see a complete eradication of such schemes, still, the actions of regulators have, to some extent, curtailed the decay. Whether this is a good reason to stifle the growth of the crypto economy within its borders is a question for another day.

America, being arguably the largest market in the world, encourages pundits to measure crypto’s successes by analyzing the rate at which it is being adopted in the US. This common trope is another limiting factor for crypto. Take, for instance, how we have come to tie crypto’s acceptance to the emergence of a crypto ETF in the US. Interestingly, other regions are not shying away from the inevitable, as countries like Switzerland are edging towards approving one, amid the unsurprising reluctance of the SEC to do the same.

In its true sense, bitcoin can do without the US, as it contends the established order of the global financial landscape. This observation must have alerted President Trump to the potentials of Bitcoin. America will forever ride on the influence it commands as a world leader because its currency is the de-facto reference currency of the global market. More so, many countries hold a large percentage of their foreign reserves in US dollars, which also translates to an additional fund generating mechanism for the US.

As such, it is easy for the US to retain its domineering status, slap devastating sanctions on nations that do not align themselves with its policies, and get away with just about anything. And as you know, power is both intoxicating and addictive. In other words, America will do all it can to mitigate the ascendancy of another currency as the global standard. Do you see why I said that the prolonged debate about the approval of a bitcoin ETF was unsurprising?

A more vivid example of America’s campaign to remain at the echelon of the financial sector is the recent call by one of its congressmen to ban bitcoin altogether. Congressman Brad Sherman stated, at Facebook’s Libra project hearing, that “For the richest man in the world to come here and hide behind the poorest people in the world and say that’s who you’re really trying to help – you’re trying to help those for whom the dollar is not a good currency: drug dealers, terrorists, [and] tax evaders,”

He went further to express what is perhaps the fears of the government and other central entities that profit from the United States’ one-man show. In his words, Sherman stated:

“Cryptocurrency either doesn’t work, in which case investors lose a lot of money, or it does achieve its objectives perhaps and displaces the US dollar or interferes with the US dollar being virtually the sole reserve currency in the world,”

This statement is a clear indication that bitcoin is indeed a necessary disruptor in an overly centralized system. And while it is still important to question the true nature of Libra and the plan to masquerade it as an alternative to fiat currencies, yet, its introduction does point to the fact that the mass adoption of cryptocurrency is inevitable. For now, the US is shying away from this truth, which might come back to hurt its influence on the global economy.

China and Crypto’s Bitter-Sweet Moments

Whereas the US has chosen to play the denial game, China, on the other hand, is aware of this truth. And its game plan is one that could topple today’s financial order. This is a sentiment that Facebook’s CEO shares, as he expressed his concerns regarding China’s affinity for blockchain technology. Zuckerberg allayed his fears that the US could play second fiddle in the financial sector if China continues to make strides in this area.

At first, those that still see China through the light of its action in banning crypto within its borders might find Zuckerberg’s sentiment far-fetched. However, a closer look would reveal that China has been making moves behind the scenes to capitalize on the advent of cryptocurrency. True to his authoritarian model of governance, President Xi Jinping has always restricted technologies that might loosen the government’s grip on the nation’s economy.

China is not against the technology that birthed cryptocurrency. Instead, it is the concept of decentralization, which crypto promotes that gives China a bit of a scare. And as reported in recent news, the country has finally found a way around it. According to reports, China is on the verge of introducing a state-owned cryptocurrency that would suppress decentralization and stamp its authority on the global market. Talk about using one stone to kill two birds.

In other words, China gets to control the outflow and inflow of money and bypass the current reserve currency – the US dollar. In doing so, its economy would become more impervious to US sanctions, which is the sole reason Russia, Venezuela, and Iran are flirting – or flirted – with state-backed cryptocurrencies.

Considering the mixed results that efforts to create state-backed crypto had generated up until now, there is a good enough reason to believe that China’s plans could have little or no effect on the global front. Nonetheless, if any nation was going to pull off an ingenious feat, it might as well be China. For one, this country has shown, time and again, its dominance in the blockchain industry. This assertion is evident in the number of patents that state-owned enterprises have applied for in the last couple of years. More so, the country boasts some of the finest talents in the crypto space, as crypto firms originating from China have gone to dominate several sectors in the crypto industry.

Another factor that might boost China’s crypto project is its efficacy as an established market that strives on trades. China is a manufacturing powerhouse, and it houses one of the biggest commerce platforms in the world – Ali Baba. If this platform adopts China’s crypto, which is inevitable, and gives incentives to users who utilize it for payments, then it is highly probable that China’s digital assets would find success. While this is a given, the Us dollar is bound to suffer from such a move, as China’s growing dominance will slowly eliminate its authority in the e-commerce industry.

How Does This Affect Decentralization?

Nevertheless, it remains to be seen if other countries would support China’s project. A more realistic possibility is that nations around the globe would intensify their efforts to create a crypto network of their own. When this happens, crypto would have achieved mass adoption, albeit with a twist. Rather than establish decentralization, the new world order will reinforce its influence on the flow of money. Subsequently, bitcoin and a few decentralized cryptos would serve as an emblem of freedom, amid a plethora of projects that undermine the autonomy of users.

Does this mean that the average decentralization supporter should fear the coming age of crypto, just as the US should? In the humble opinion of this writer, as long as blockchain technology remains critical to the future of money, decentralization will always find a place in the conversation. This concept is the foundation of blockchain. And regardless of the push to drive it behind the scenes, radical minds will stop at nothing to find new ways of beating the system.

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