Bitcoin - China Up Against The Wall

How could China stand idly by if the United States is building a strategic reserve of bitcoins?

Where does Bitcoin stand in China?

The Chinese government banned ICOs (Initial Coin Offerings) as early as 2017. Exchange platforms were shut down four years later. It is still impossible for Chinese people to buy bitcoins with a few clicks. The Binance platform was notably forced to close.

Nevertheless, it is not illegal to hold bitcoins in China. The Beijing Arbitration Commission published a report in 2020 containing the following three clarifications:

– Bitcoin has no legal tender status.
– Bitcoin is a “virtual commodity”.
– Traditional financial institutions are prohibited from providing their services to exchange platforms.

Despite these government decrees, several Chinese courts have established over the years that bitcoin is protected by property rights. Judge Sun Jie reiterated this week that bitcoin has the attributes of a property and that it is therefore legal to own it.

“It is not illegal for individuals to hold cryptocurrencies,” he wrote on the official WeChat account of the Shanghai High People’s Court.

That being said, the hostility of the Chinese government is less pronounced towards the bitcoin industry.

China, a mining giant

The largest companies designing the integrated circuits (ASICs) used to mine bitcoins are Chinese. The leader is Bitmain. Its market share was long over 80%. The second most important company is MicroBT, also Chinese.

In other words, Chinese companies control most of the market, and this dominance doesn’t stop there. Chinese miners once accounted for up to 70% of the Bitcoin network’s computational power. This figure is now closer to 20%, neck and neck with Russia, far ahead of Europe and behind the United States (~35%).

If miners forge the consensus of the Bitcoin network with gigawatts of hash power (the “proof of work”), pools are also an essential link. They are a kind of cooperative allowing miners to pool their computing power to smooth out their revenues.

Their importance lies in the fact that they are the ones who select transactions in the blocks. And again, China is in the lead:

#Bitcoin hashrate dominance is shifting to U.S. mining companies.

Chinese mining pools operate 55% of the network, while U.S. pools manage 40%.

U.S. pools primarily cater to institutional miners in America, while Chinese pools support relatively smaller miners in Asia. pic.twitter.com/kepopLWBSD

— Ki Young Ju (@ki_young_ju) September 23, 2024

It is certain that a good portion of bitcoins belong to Chinese entities that have every interest in the government lifting the anathema. The election of Donald Trump should help them make moves.

Strategic reserve of bitcoins

According to the World Gold Council (WGC), the Chinese central bank bought more than 500 tons of gold last year, more than all the other central banks combined.

The following graphs show that the gold binge of the Middle Kingdom is accompanied by a reduction in its dollar reserves, which says a lot about the future of the international monetary system:

China is moving from paper to hard assets pic.twitter.com/BqOy0k8Z8G

— Willem Middelkoop (@wmiddelkoop) September 16, 2024

The Chinese president Xi Jinping will sooner or later realize that bitcoin is an infinitely superior store of value to gold. It is a currency in addition to a payment system (two-in-one) that could help ease geopolitical tensions.

Beijing should not ignore this, especially since Senator Cynthia Lummis proposes selling the gold of Fort Knox to acquire a million bitcoins… Here’s what she declared this week, like a hand extended to the rest of the world:

“The dollar is the international reserve currency, but other currencies like the Chinese yuan also want to have this role. Oil could be sold, not only in dollars, but in other currencies. We may be heading towards a world where several reserve currencies coexist. And in this scenario, I am absolutely certain that bitcoin will be one of them and it might be the most important one.”

How could China not view this development favorably, suggesting that Washington is ready to trade on equal terms by embracing the Bitcoin Standard?

Lines are moving quickly. A resurgence of bitcoin in China could be the big event of 2025 that catapults bitcoin towards a million dollars.

Don’t miss our article: “Bitcoin on the verge of sucking up a fortune of 4 trillion $.”