China’s ‘cryptocurrency’ launch is just around the corner.
After five years of extensive research and development, the People’s Republic of China is set to release its own cryptocurrency. This was made known by Mu Changchun, a top official at PBoC payments department, at an event held by China Finance 40 Forum (CF40) in Yichun County, Heilongjiang Province.
Considering the country’s long-term hatred for decentralized blockchain-based cryptocurrencies, what does this imminent launch of China’s cryptocurrency mean for Bitcoin?
China’s ‘Cryptocurrency’ Play Is All About Control
China, known for its strict monetary controls, intends to use its Central Bank-approved cryptocurrency to have more control over its depreciating national currency.
By replacing cash in circulation with a digital asset, the People’s Bank of China and the Chinese government would be able to control and monitor the flow of yuan better. And unlike Bitcoin, this proposed cryptocurrency will be based on a centralized and permissioned blockchain network or a system similar to the blockchain.
Cash is anonymous by nature since it is not easy for the authorities to track transactions made offline in a peer-to-peer (P2P) manner. A digital system would make it easier for regulators to scrutinize questionable transactions.
However, whether the state-backed crypto can be regarded as a true cryptocurrency is another issue on its own. This is because a blockchain protocol usually exhibits decentralization to a certain degree through the presence of nodes and open source communities, as seen in the structure of the BTC network.
All the same, China’s long-fabled crypto project is not about enhancing freedom, but about restricting it.
Fed- Yuan Won’t Affect Demand For Bitcoin
According to various reports, major cryptocurrencies, such as Tether (USDT) and Bitcoin, have seen high inflows from China in recent months.
Diar, a Crypto research company, stated that China accounts for 62 % of the total on-chain volume of Tether in the second quarter (Q2) of 2019. According to the report, Chinese demand for Tether in 2019 has already surpassed that of the previous year. The report read, “Data provided to Diar by blockchain analysis firm Chainalysis highlights the magnitude of Chinese Tether demand with over $16 billion received by exchanges based in that market in 2018. This year the number has already surpassed an outstanding $10 billion, setting the stage for the biggest year yet.”
Bitcoin’s popularity in China can be ascribed to the increasing interest in the grandfather cryptocurrency as an alternative store of value. It is noteworthy that Chinese investors do not see Bitcoin as an everyday payment tool – but as a store of value. The reason is that efficient digital currency platforms, such as WeChat and Alipay, have already gained millions of users.
Therefore, the PBoC-backed crypto is very unlikely to have any significant impact on the country’s stance towards BTC or to lower investors’ demand for Bitcoin.
The Safe Haven Asset Story
It is still unclear whether Bitcoin has proven its worth as a safe-haven asset.
As the price of Bitcoin reduced in August, the volume of the asset also dropped while its premium in major cryptocurrency markets, such as South Korea and China, lowered.
Bitcoin is trading at a rate below the global average price by more than 1 percent in South Korea, a major cryptocurrency market accounting for a large chunk of global Bitcoin volume.
With intensifying conflicts and growing geopolitical risks all around the world, financial experts expect gold and other traditional safe havens to perform well. However, only time can tell whether Bitcoin will also be able to demonstrate similar resilience.