News from China this week sent Bitcoin values plummeting, as it appeared the state was signaling a clampdown on the cryptocurrency.
In a report issued on December 5, the People’s Bank of China issued a five-part document that laid out its thoughts on Bitcoin’s status. Most notably, it defined Bitcoin as a virtual commodity rather than a currency, and it forbade financial and payment institutions from developing Bitcoin-based services.
That sounds bad on first reading, as Chinese users had been largely responsible for the currency’s large uptick in value this fall.
But, as Vitalik Buterin points out at Bitcoin Magazine, the news is not necessarily bad.
First, providing Bitcoin services would only be forbidden for Chinese banks and maybe online payment services such as Alipay. The exclusion probably would not extend to Bitcoin-based funds or Bitcoin exchanges.
The second point is that trading Bitcoin as a virtual commodity might exempt it from the state’s 17% sales tax.
Note that this analysis is coming off an interpretation of the document’s translation into English.
A pessimistic take: With the imposition of new regulations on China, that means the US may not be alone among world powers in its quest to clumsily stifle innovation.
As Daniel Cawrey at CoinDesk noted last weekend, China had been “eating the USA’s lunch.” The perceived lax regulatory environment allowed Bitcoin innovation in China take off. Wealthy Chinese had a convenient way to move wealth around, and BTC China grew to be the world’s largest Bitcoin exchange.
China was leading the way. It remains to be seen whether this will continue to be the case.
This could be a pyrrhic victory for American-based Bitcoin businesses, who now might gain a step toward equal footing with Chinese competitors thanks to a nebulous regulatory environment in both countries.
An optimistic take: An emerging regulatory framework means Chinese Bitcoin businesses have gained a better idea of what is and will be permitted going forward. The exchanges, for example, are in good shape.
Buterin takes this position in his analysis. And with Bitcoin integration more or less impossible for banks for now, Bitcoin in China will be free to evolve outside of those institutions.