China Wants Control Over Bitcoin
Today the bitcoin crash can be attributed to a perfect storm of bad news for cryptocurrencies. Sunday night, the crypto exchange black wallet was hacked. While the thief involved a minor crypto currency, the major coins felt an impact. Adding to the bad news, Bloomberg says that China plans to block domestic access to Chinese and offshore cryptocurrency platforms that allow centralized trading. Chinese investors began a panic sell-off on the news. As of Tuesday January 16th, bitcoin is trading around $12,000. The high this month was nearly $20,000. All other crypto currencies are falling at a faster rate than bitcoin.
Bitcoin offer freedom from central bank control
Cryptocurrency offers a new form of cash free from government control and monetary policies. Governments cannot accept this. Governments say that they need control to stop terrorism, drug trafficking and money laundering. Whenever governments want to limit their population’s freedoms, these are the usual reasons. However there is good reason for governments to act as a referee. They are effective in stopping insider trading in stocks. Leveling the playing field so everyone has an equal opportunity is a good example of effective government.
Speculation and risk fuel innovation
One of China’s goal is to stop speculation. However, risk is the basis of start-ups and new ventures. If an individual wishes to spend his wealth on risky ventures, it is not the government’s business. The caution in bitcoin speculation is simple. Don’t risk more than you are willing to loose. High profits and high losses are normal for cryptocurrency speculation.
Bitcoin will probably recover
While China may slow down the adoption of cryptocurrencies, its population will find a way to invest. The freedom that they offer is too tempting. Also, the tax evasion argument is not strong. In the US, voluntary compliance has been the norm. The threat of punishment is sufficient. Shutting down freedom never succeeds in the long run. Also, the cryptocurrencies will most likely stabilize. But crytocurrency is here to stay.