Sunday, 29th January, 2017
| Turning tables
The recent inspections by the People’s Bank of China of the country’s leading bitcoin exchanges are not as much about bitcoin as we think. Instead, they are part of far-reaching changes in China’s role on the world stage. (Continued THE TAKEAWAY below.)
TOP 5 STORIES ON COINDESK Mixed reactions. Trading volumes tumbled after China’s leading bitcoin exchanges announced earlier this week that they were introducing fees on bitcoin trades. Some market observers believe that the disappearance of “fake volume” will be positive for the market. Others are more pessimistic, voicing concern that “bruised” sentiment will drive away Chinese buyers. Read more here or here.
Blockchain goes physical. Microsoft has unveiled Project Manifest, a blockchain-based enterprise platform for supply chain management that focuses on actual RFID tracking of goods. It remains to be seen how this will differ from IBM’s Watson, but it does look like the integration of IoT to the blockchain is entering a new phase. Read more.
Connected things. The development of the “blockchain of things” should get a further push from a new industry consortium. The group, which includes Fortune 500 companies and blockchain startups, aims to develop standardized solutions to IoT blockchain integration, as well as to both enhance the potential and mitigate the risks of connected systems. Read more.
Lending blockchain. Alternative lending platform LendingRobot has taken the first step towards moving its operations onto a public blockchain – in this case, ethereum. Starting with a new series of investment products, the transaction details will be hashed and stored on ethereum. While the investments themselves will still be conducted as usual, if this goes well, it could mark the beginning of a new era for online investment services. Read more.
Controversy. Grayscale Investments has revealed plans to launch an investment vehicle called the Ethereum (ETC) Investment Trust, based on ethereum classic, a different version of the original ethereum chain. But the Ethereum Foundation holds the trademark for the name “ethereum”. Opinions are divided on whether the distinction is clear, what the underlying motives are, and what the next step should be. Read more.
FOMO ALERT!!!
Tomorrow we kick off CONSTRUCT, our summit for developers and senior engineers.
There are still a few tickets left, so if you want to come and hang out with leaders from all major blockchain communities (Bitcoin, Ethereum, Hyperledger, Blockstack, Zcash, and more), as well as representatives from a wide range of blockchain startups and enterprise developers, head over to San Francisco and come and join us!
😎 REGISTER HERE 😎
QUOTE OF THE WEEK “If they want to keep the buzz going, Blockchain's banking backers will have to prove they can offer even greater rewards, without having the spur for greater risk-taking that would have come from plunging market caps. It's cold shower time.” – Lionel Laurent, “ A Rude Awakening for Blockchain’s Dreamers”, for Bloomberg
WHAT DO YOU THINK? Will blockchain disrupt venture capital? Is the lack of legal framework a barrier? Do you think ICOs are safe? We would really appreciate your feedback for our forthcoming State of Blockchain 2016 report.  TAKE THE SURVEY |
THE TAKEAWAY
Last week, for the first time ever, a Chinese head of state took the podium in Davos. Xi Jinping’s speech about globalization has been interpreted as a response to rising protectionism – and an attempt to consolidate China’s position on the world stage. It is also indicative of the path the Chinese authorities are likely to take regarding the country's bitcoin exchanges.
While we’ve been focusing on the central bank’s scrutiny and its potential impact on bitcoin‘s ecosystem and price, we were missing the bigger picture.
First, a bit of background:
Over the past weeks, we’ve seen clear evidence of China’s weight in global bitcoin markets. News of meetings between the People’s Bank of China (PBOC) and leading cryptocurrency exchanges sent BTC prices tumbling. The subsequent suspension of margin lending and the introduction of trading fees had dramatic effects on volumes, and many feared that the resulting dent in Chinese demand would dampen price growth.
Some interpreted the moves as an impending crackdown on bitcoin transactions. China needs to stem capital outflows, the reasoning went, and since bitcoin is an attractive vehicle for that, it needs to be stopped.
But we were looking in the wrong place.
Traditionally, the US has been the world’s champion of free trade while China has dragged its feet. Now that the tables seem to be turning, China appears eager to position itself as a “modern” economy with a flourishing fintech ecosystem.
Part of that is an interest in blockchain technology.
Earlier this week, local sources reported that the PBOC had tested a blockchain-based digital currency and is establishing a related research institute. Furthermore, banks, startups, academia and consortia are working with international institutions to foster a bustling blockchain environment.
While interest in permissioned ledgers is not the same as support for digitized assets like bitcoin, a desire to participate in foundational change bodes well for the acceptance of alternatives. And an understanding of how the technology works should prevent impractical measures.
The PBOC has not, to our knowledge, indicated an interest in banning bitcoin, nor is it likely to. Most pronouncements have expressed a cautious interest, and trading restrictions are less an indictment than they are part of the central bank’s job. Capital outflows are a concern, but local experts downplay the threat to monetary policy. While most of the world’s bitcoin mining and trading takes place in China, the cryptocurrency’s market capitalization is minute compared to the overall size of the Chinese economy.
The recent interest in bitcoin exchanges could well be part of a larger attempt to deflate asset bubbles.
This week the PBOC asked banks to curb lending, ahead of what is traditionally the strongest quarter for growth in loans. The request stressed the importance of reducing mortgage allocations, with the hope of curtailing runaway real estate prices. The central bank also raised interest rates for the first time in years, which some analysts interpreted as part of its objective to curtail speculation.
While the bitcoin-related moves do seem to inch towards regulation, few believe that would be bad for the sector. Most appear to focus on the legitimacy it would bestow and the confidence it would give the ecosystem.
Looking ahead, political and economic troubles could complicate things. The possibility of a trade war or even a military conflict in the South China Sea could send the exchange rate lower, drive the BTC price higher and put increasing pressure on the Chinese government to appear strong, especially in the run-up to their 19th party conference later this year. Yet, as China heads into its week-long holiday for the Lunar New Year, the approach seems to be one of dialogue and further investigation.
In his Davos speech, President Xi quoted a Chinese proverb: “Honey melons grow on bitter vines, sweet dates grow on thistles and thorns”. This not only is a fitting metaphor for China’s internal conflict between wanting to participate in (or even lead) global progress and at the same time keep things calm at home. It also seems to sum up bitcoin’s struggles to become an accepted medium of exchange in a world of shifting priorities. And it should reassure us that, in China, bitcoin is not a target. The government’s moves are part of a broader push to keep financial markets healthy.
– Noelle
More background:
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OTHERS ARE TALKING ABOUT...
China continues to be in the news (see our TAKEAWAY above). For background, Business Insider tried to shed light on why bitcoin is so popular in China. Bloomberg put a positive spin on the drop in volumes, and helpfully pointed out the irony that freedom lovers should be thanking the communists. And Reuters reported on how blockchain technology could help China fight financial fraud.
Elsewhere, the FT published an overview of blockchain potential, focusing on a few key players in the industry. Wired seems to really like Monero’s privacy features.
Some outlets recommended blockchain caution. Bloomberg posited that a good return on blockchain investments is not a sure thing. And the Harvard Business Review carried a hype-grounding article that contrasts the blockchain dream with the reality, noting that it will (and should) take years to reach critical mass.
UPCOMING EVENTS
WHAT WE’VE BEEN UP TO Pete Rizzo braved the balmy weather and beautiful scenery of Cancun, Mexico, to bring you first-hand accounts of the Satoshi Roundtable talks, an invite-only gathering of bitcoin’s thinkers and doers.
You can read his reports here and here.
From there, Pete flew to Palo Alto for a conference at Stanford University (reports here and here), and then headed up to San Francisco to join the team for the launch of our developer conference Construct (expect good reports next week!).
In case you think that itinerary sounds glamorous, let me point out that the life of a CoinDesk editor is not easy. Apart from the ridiculously early mornings and the almost constant jet lag, all this travel to beautiful locations is really exhausting. I’m just sayin’.
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