Armstrong On Bitcoin

by Dave

Armstrong projects that the Chinese government will be forced to regulate Chinese bitcoin trading simply because they have no choice – if and when they impose capital controls.  I’ve experienced the GFWC, and its pretty lethal in its ability to control traffic.  My sense is, if the Chinese government wanted to “turn off” bitcoin traffic in China, it wouldn’t be very difficult.

And if that happened, the bottom would drop out of bitcoin.  It would probably drop through 100 in a heartbeat.  Bids would simply vanish.

Bitcoin exists only because the gang in charge has decided to ignore it for now.  I can’t say for sure when China will pull the plug, but I believe they will – as soon as they decide to seriously restrict capital outflows.  That probably comes alongside “fixing” their banking system.

I absolutely would not have any substantial amount of money in bitcoin, given that its current value is underpinned by Chinese activity, which can be turned off with a flip of the switch.

Contrast that to a little gold bar – where there is no centralized control possible.  At some point, the gold bar will have its day.  I know, I’m a luddite.  I also am terrified by the IoT too.  I don’t want “smart fridges”, or smart TVs, or really “smart” anything.  It all sounds like a grand opportunity for all sorts of spying to take place without your knowledge – and you are the one placing the sensors inside your home.  Sheesh.

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The Chinese have been buying bitcoin onshore, selling it offshore for another currency and then moving the money to a bank account. This is how the Chinese individuals can taken cash out of the country circumventing all regulation. The Chinese  government has been strengthening requirements for citizens converting their yuan and with Trump coming into office, China fears that lower values for the yuan will become a trade war even if the government is not activity trying to depreciate the yuan for trade. Conversions of yuan are already subject to a quota or currency controls in an effort to curb capital outflows.

Bitcoin has been the escape method for capital fleeing China. With the looming trade war on the horizon, the Chinese government will have absolutely NO CHOICE but to come in and regulate Bitcoin when it’s citizens now account for 98% of all trading. From a regulatory perspective, the days of passive treatment of Bitcoin may come to an end. Bitcoin has soared only because it has been the mechanism to obtain foreign exchange and take capital out of China. This can easily be called illegal operations such as money laundering to justify closing that window.


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