ABERDEEN, SCOTLAND – Finally, a nice strong pullback in the bitcoin price. Thousand-dollar increases in price every day are great fun, but unsustainable – this weekend’s drop down to $34k is cause for relief.
I mentioned last week how the speed of the rally was making me uneasy, and I’m glad to see it finally take a breather. I’d hope to see a consolidation in the price from here, with the market finding a solid base price and ranging around it, but let’s watch and find out.
To start this week, I thought I’d share some of the great correspondence I’ve been receiving from the readership. In The Night Trade (6 January) I wondered aloud if this entire rally in bitcoin might have been sparked by wealthy Chinese individuals using BTC to get their money out of the country.
Capital flight from China is nothing new though, and nor is the use of bitcoin as a vehicle for it. What might have caused such a large wave of capital flight to cause this I asked, compared to the regular trickle of wealth which flees the country?
You had some interesting ideas…
You ask … “why all of a sudden” are wealthy Chinese shovelling wealth out of the country away from the grasp of the CCP.
Maybe they know what’s happened to Jack Ma & decided on making “alternative arrangements”.
Can’t say as I blame them.
All very sad to say for a chap like me who met his wife over 50 years ago on a Junk in the South China sea … as you do!
In October 2018, the dissident Chinese billionaire Miles Kwok predicted in an interview with Real Vision that Jack Ma would be dead or in jail within a year. The CCP doesn’t let billionaires in its borders to get too big for their boots, said Kwok – and Alibaba founder Ma would be in its crosshairs shortly.
The disappearance of Ma following his criticism of the CCP makes you wonder if Kwok just got his timing wrong…
I’ve been searching for a plausible theory for Capital Flight out of china via BTC for a while and time and again the only thing I can come back to is the new CBDC [Central Bank Digital Currency].
Although it is only in its testing stages at the minute the CCP (or the central bank -same thing) have introduced the citizenry to this new digital currency via a lottery system where one can ‘win’ x amount of eCash. They have programmed the CBDC so that the people cannot buy BTC or gold with it.
It wouldn’t take too long for investors to get wind of this and to realise where this is all heading. So, could it be that, like anybody with some fully functioning and non-propagandised brain cells people are finding ways round this? Are they using the stable coins to purchase BTC and the help migrate their wealth out of the system?
The plot thickens…
The ability to program money has massive utility, and will unlock economic opportunities and entire industries that we can’t even imagine yet. This utility is one of the reasons bitcoiners, ethereans, and other crypto-bulls get so excited about digital assets.
But the ability to program cash has a dark side too – which we’ll get to know in great detail once CBDCs get launched and those in power start bending the nature of money to be biased against some, and towards other types of transactions.
We experience a shadow of this already – like when your bank declines a payment you’re trying to make because it’s been flagged as suspicious. But CBDC would be a whole new ball game – your money would be cancelling the transaction, rather than a bank. The e-cash could be programmed to be unpayable when used to acquire goods or services that have been deemed bad for you.
It’d be like you’re suddenly trying to pay for it in dollar bills – the vendor would be unable to accept the transaction, and your e-cash would remain stubbornly in your account. Oppositely, if every citizen is granted a CBDC account (a digital wallet), the government via the central bank could credit e-cash in virtually unlimited quantities to specific segments of the population to stimulate the economy where they see fit.
Linked to your identity, a British CBDC (say e-sterling or “e-£”) could be used to subtly nudge your behaviour in whatever direction the government wants. Or not so subtly.
Been putting on the pounds recently? Sorry pal, your money won’t work in McDonald’s. It’s for your own good as per our latest health initiative, and the health app on your phone says you now have an elevated risk of heart disease. Don’t you want to save the NHS?
But oh look – you happen to be a member of the key demographic the ruling party needs votes from to get re-elected. Good news: your purchasing power at the supermarket has just been increased by 20% for the next month to help you deal with the unique stresses your demographic faces – because the government cares, and wants to help…
We should take note of how CBDCs are used (and abused) in other countries – China in particular.
Some readers think the prospect of Covid-reparations on China might be causing the bitcoin boom.
In today’s letter to your readers, you invited us to suggest reasons why the CCP and/or independently wealthy Chinese people might wish to launder their money out of the country through Bitcoin. My suggestion is it is the fear of reparations from the powerful western governments once the dust has settled on Covid-19. History shows that after the two World Wars, the allies sought punitive reparations from Germany, and the western justice mindset that triggered this aftermath has not changed since. It might take a decade for America, Europe and the UN to grind through all the evidence, but China knows its bat-pangolin narrative simply doesn’t stand up and will be shown to be a load of duplicitous hokum when the full force of a forensic investigation takes place. Just a thought.
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I believe the China/Bitcoin explosion is linked in some way to the Chinese rulers anticipating very aggressive reactions from other countries in the west to the utter contempt they have shown to the rest of the world with regard to the Coronavirus.
The repercussions have a long way to go and western countries will slowly become more angry with China for producing the virus and hiding facts. They may take financial action against China and I suspect Cryptos may be in China’s armoury for when that time comes.
We must remember that the rulers of China do not give a fig for their population, unlike the elected governments of democracies.
I would add as a caveat to that last sentence that while the CCP does not give a fig for human rights, it is absolutely terrified of its population. Widespread domestic unrest – a “Chinese Spring” – is its worst nightmare, hence its rollout of massive surveillance capabilities, its endless need for job creation, and its fear of inflation.
Inflation we’ll come back to tomorrow – I said on Friday it was the big threat to the rally in tech stocks, which also then poses a threat to bitcoin. I think we’ll see higher than expected inflation this year, breaking from the trend of recent history and lighting a fire beneath one of my favourite assets: silver…
Until tomorrow,
Boaz Shoshan
Editor, Capital & Conflict
Category: Investing in Bitcoin