The short, but spectacular, life of Bitcoin can be described in one word: defiant. Bitcoin as a very concept defies the conventional wisdom that currencies are issued by nations, and it defies the notion that tokens of exchange must be inflationary and pay interest. Most of all, it has defied its critics and doubters and has crossed into the mainstream.
Over the last week or so, Bitcoin has come under pressure. China began its attack on Bitcoin and the clampdown reached a peak over the weekend when around 90 percent of that country’s mining capacity, which represents around 75 percent of global capacity, was shut down.
However, this isn’t the first “crackdown” on Bitcoin by the Communist Party. This time, though, China seems to be determined to beat the crypto crowd, throwing everything they can at it. The question that remains now is whether or not others will follow their lead. This will be critical in deciding the future of Bitcoin and other cryptocurrencies.
Will the U.S., the E.U. and others major countries abandon their principles and outlaw and decry something that poses no threat to anyone but themselves? Will they openly commit to dictating where people can invest and speculate? Will they raid and/or attack private property to protect their financial interests?
There are many in the Bitcoin community who say this could happen. I, however, am a bit more of an idealist and an optimist. I believe that there is another path open for these governments and that is just to do nothing.
Bitcoin is defiant, but it is also resilient. There have been attacks in the past, but Satoshi Nakamoto, the original writer of the Bitcoin whitepaper, must have realized from the outset that if you provide enough financial incentive for people to get involved, it can quickly become a force that cannot be tamed. Now, Bitcoin’s reach is much too great to be policed and its presence will simply pop up somewhere else if it is suppressed. In fact, this has already begun. CNBC’s Eunice Yoon tweeted this morning that a logistics firm in Guangzhou is airlifting 3,000 kg of mining machines to the U.S.
Now, the American government has a choice. Do they side with China or do they welcome the investment with open arms? I would like to think that the potential long-term geopolitical advantages will force them to do the latter.
All in all, this latest Chinese crackdown may not be a reason to sell bitcoin – at least from a price standpoint. The reason for the selloff we are seeing this week assumes that the Chinese mining capacity will be lost for good, or that other countries will follow China’s actions. However, I think that while China’s actions will temporarily disrupt supply, it will ultimately force the price higher, not lower.
I certainly wouldn’t bet on the death of Bitcoin yet. It has proven time and again that it is inherently resistant to attacks by governments and can bounce back.
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Author: Martin Tillier