The Bitcoin market in America and China: A comparison

When it comes to Bitcoin, there are no greater markets than the United States and China. And just as the culture and idiosyncrasies of these two financial powerhouses contrast like night and day, the countries’ approach to Bitcoin trading -and cryptocurrencies in general- is a reflection of their deeper identities. 

Here’s the irony: Despite the apparent military and financial might of these two sovereign nations, a microscopic organism has cast the United States and China as quite unwilling protagonists in an unfolding global drama known to the world as the Covid-19 pandemic. Who’s the villain and who’s the hero of the play is up for debate and beyond the scope of this piece, but through it all, the Bitcoin undertow keeps flowing.

Each nation understands, recognizes, and regulates Bitcoin in unique ways. Some crossover, some do not. But how each state deals with Bitcoin, and how global market factors influence decision-making in the crypto ecosystem, offers great insights into the desired direction of the Bitcoin market in either country. 

The American Bitcoin market: Uncle Sam wants (to tax) you

Back in July of 2019, the Internal Revenue Service (IRS) issued letters to over 13,000 people known to have carried out, and profited from, large-scale crypto transactions. The IRS’s position was clear: If you made money out of crypto, we want our share, fair or not, but we want it, all the same. As an American, you pay 15% tax on all your earnings from Bitcoin, and 20% if you were single and made over $425,800 ($479,00 for married couples).

This episode was well-publicized and became a landmark moment in the troubled history of crypto assets in the United States. The IRS holds a lot of clout. Legendary mafia boss Al Capone was said to fear this agency more than any of his sworn enemies. Indeed, Capone’s demise stemmed from tax evasion issues, in which the IRS played a pivotal role to unravel and catch the crook. America might be the Land of the Free, as long as you pay your taxes, that is.

 

Bitcoin has locked horns with the US Government more than once. Back in July 2019, Donald Trump branded the currency as ‘thin air’, while Trump’s Secretary of the Treasury, Steven Mnuchin, referred to it as a ‘national security threat.’ Trump used Twitter to engage in a tirade against Bitcoin, saying that Unregulated crypto-assets can facilitate unlawful behavior, including drug trade and other illegal activity. Mnuchin, whose financial policies closely align to his boss’ whims, went a step further, equating Bitcoin trading as an issue that could threaten the US’ national security.

 Trump and Mnuchin’s voices ring loud indeed, and hold sway over partisan decision-making. And these voices largely echo the IRS’ dim view on Bitcoin, and crypto assets in general, for one reason, and one reason only: The perceived threat that cryptocurrencies pose against the US Dollar.

In a job offer posted in February of 2020, the Office of the Director of National Intelligence looked to recruit two researchers to evaluate the potential impact of the US Dollar losing its hegemony as the de facto currency for the world reserve. In other words, the US Government, while acknowledging the existence of Bitcoin -and cryptos, in general- wants to know how bad would the US economy, and the country at large, be affected if cryptocurrencies were to achieve mainstream status.

The Chinese variant: Cracking down on crypto

The 2020 economic downturn has propelled China into a most unflattering limelight. Wuhan, a city which very few people in the west had ever heard of, is now a household name, for all the wrong reasons. Conspiracy theories aside, the patient zero for the novel pandemic of 2019-2020 remains unknown, and will likely never be identified, but all signs point to a zoonotic transmission that took place at a Chinese wet market in late 2019.

The Chinese Government is not particularly attached to transparency, either, nor does it hold a favorable view on Bitcoin. The currency, while it holds a status of legality in the country, has been effectively suppressed. Financial institutions, for example, are strictly banned from facilitating transactions involving Bitcoin, and Government-enforced regulations prohibit these same institutions from holding or trading Bitcoin, or indeed any other cryptocurrency.

 The timeline for China’s steady onslaught against crypto assets is well known.

On April 1, 2014, the country issued a directive ordering  commercial banks and payment companies to close bitcoin trading accounts within two weeks. 

The price of Bitcoin in March 2014 had highs of $700 and lows of $450. Soon after this regulation, later in April 2014, the price of Bitcoin had plummeted to highs of $530 and lows of $340, somewhat showing the turmoil caused by the government throttling the market.

These trends have kept continuing to this day.

In September 2017, all China-based crypto exchanges or trading platforms were outlawed. Almost 200 platforms had closed by July the following year. 

This was not long after the price of Bitcoin had reached a price of $5,000, coincidently or not, within the first week of September Bitcoin price dropped 28%.

And in early 2018, the People’s Bank of China announced their intention to crack down on Bitcoin mining activities. Most such operations ceased shortly afterwards. 

Against this tight regulatory backdrop, Bitcoin’s legal status means little, as there’s next to nothing that people can do with the currency, other than trade it using foreign exchanges.

China had once hosted some of the world’s largest Bitcoin mining farms, taking advantage of China’s relatively cheap energy prices (Bitcoin mining is electricity-intense), and generating handsome profits for a selected few. These gigantic mining facilities had been operating for some time, and had been left largely alone by the government.

So why the sudden change of heart?

 

Different strokes for different folks: The national motivations for moving against Bitcoin

To say that America looks at crypto assets with skepticism is an understatement. America’s position on Bitcoin is one of fear and distrust because of the long-standing belief on the US Dollar as the world’s most powerful currency, so anything that might threaten this privilege is not to be allowed.

 Trump and Mnuchin’s attitudes probably feed into the deeply ingrained narrative that the US’ dominance in the world’s order must be maintained at all costs, using the US Dollar as exclusive currency to retain and bankroll this status quo.

China’s apparent hostility against Bitcoin and cryptocurrencies appears to have a completely different motivation altogether. Many believe that China is not specifically against Bitcoin, or any other digital currency for that matter. Indeed, the country’s developing its own, party-endorsed digital asset, the digital yuan, which is backed by China’s national currency, the Renminbi. https://www.asiacryptotoday.com/news/china-digital-yuan-dcep/

Co-founder of Agora Desk and Local Monero, who goes by the pseudonym, “Alex”,  believes that China’s crackdown on Bitcoin was “prompted by a government campaign against so-called alternative financial products that could potentially cost billions in customer losses”. Chinese regulators also came down hard on Peer-to-Peer (P2P) loans, trusts, and non-bank financial institutions. In short, regulators sought to minimize financial risks befalling the country.

 

So what about the future of Bitcoin in America and China?

Always in motion is the future, according to the wise Yoda. True words, which essentially mean that the future is yet unwritten, and therefore, cannot be accurately predicted.

If today’s trends were to persist, Bitcoin remains a viable asset in the United States, albeit one that will be kept under the watchful eye of the IRS and other regulating bodies, lest they miss out on a slice of the crypto pie.

China, however, offers a different story, one that does not bode well for the future of Bitcoin there. Holding and transacting Bitcoin on ‘traditional’ institutions is largely banned, which probably pushes many to black-market trading, thus furthering the dark associations that Bitcoin -and cryptocurrencies as a whole- have had to live with since day one.

 

The above article is written by guest author Kevin Wilson. who has been investing in Crypto-currencies since 2016 and writing about them since 17′.

Discuss this news on our Telegram Community. Subscribe to us on Google news and do follow us on Twitter @Blockmanity

Did you like the news you just read? Please leave a feedback to help us serve you better

Disclaimer: Blockmanity is a news portal and does not provide any financial advice. Blockmanity's role is to inform the cryptocurrency and blockchain community about what's going on in this space. Please do your own due diligence before making any investment. Blockmanity won't be responsible for any loss of funds.