In a recent interview, former U.S. President Donald Trump expressed concerns over China potentially dominating the cryptocurrency market. This unexpected stance comes as Trump seeks to position himself as the “crypto president,” arguing that the U.S. must embrace digital assets to prevent China from seizing control. But is this fear justified? Could China re-enter the crypto scene after its 2021 ban on Bitcoin mining and trading, and can any nation truly control decentralized assets like Bitcoin (BTC) and Ether (ETH)?
China was once a major player in the cryptocurrency world. Before the ban in 2021, China housed some of the largest crypto exchanges and accounted for approximately 75% of global Bitcoin mining. However, the Chinese government abruptly ended crypto trading and mining, citing concerns over financial stability and capital outflows. This move sent shockwaves through the industry, forcing miners and exchanges to relocate.
Despite the crackdown, recent developments suggest that China may be reconsidering its stance on cryptocurrencies. In April 2024, the central government approved the launch of several Bitcoin exchange-traded funds (ETFs) in Hong Kong. This has fueled speculation that China might be testing the waters for a potential re-entry into the crypto market through Hong Kong, which has a different regulatory environment compared to the mainland.
Experts are divided on whether China regrets its 2021 decision. Daniel Lacalle, chief economist of Tressis, argues that the ban was a strategic error, especially given China’s goal to de-dollarize its economy. He suggests that the ban hindered technological innovation and weakened the yuan. Similarly, Emiliano Pagnotta of Singapore Management University believes that China lost significant leverage by forfeiting its dominance in Bitcoin mining, which now predominantly occurs in the U.S.
Conversely, Yikai Wang, an assistant professor at the University of Essex, contends that China does not regret its decision. He points out that China’s stringent capital controls necessitate a ban on crypto trading to prevent uncontrolled capital outflows. However, Hong Kong’s open market policies make it a suitable hub for cryptocurrency activities, potentially serving as a bridge for capital flows between China and the rest of the world.
Patrick Pan, CEO of OSL, a crypto exchange in Hong Kong, notes that while mainland China remains hostile towards cryptocurrency trading, it acknowledges the value of blockchain technology. China’s development of the digital yuan demonstrates its willingness to integrate blockchain into its financial infrastructure for enhanced efficiency and security.
The Chinese government’s approach to crypto remains opaque, but there are signs of a strategic reassessment. Zennon Kapron, founder of Kapronasia, suggests that China’s softened stance in Hong Kong could be a tactical move to stay competitive in fintech without altering its mainland policies. However, he cautions that the global crypto landscape has diversified, making it difficult for any single country to dominate.
If China were to re-enter the Bitcoin mining industry, it could leverage its access to cheap hardware and electricity. Yet, the decentralized nature of cryptocurrencies poses a significant barrier to dominance by any one nation. Wang argues that China could regain a significant role in Bitcoin mining, given its capabilities in mass production and infrastructure development.
Trump’s concerns about China taking over crypto may be more about political strategy than economic reality. By highlighting a potential geopolitical threat, he aims to rally support from the growing number of American crypto enthusiasts. His stance also reflects a broader apprehension about the rise of central bank digital currencies (CBDCs) led by China and other BRICS nations.
Ultimately, the decentralized nature of cryptocurrencies makes it unlikely that any single nation, including China, could achieve dominance. While China may influence the market through initiatives like the digital yuan and regulatory adjustments in Hong Kong, the core principles of decentralization and diversification in cryptocurrencies act as robust safeguards against monopolistic control.
In summary, while China’s potential re-entry into the crypto market could have significant implications, the inherent characteristics of cryptocurrencies ensure that true dominance remains out of reach for any single nation. Trump’s alarm may serve as a political maneuver, but the decentralized ethos of crypto continues to provide resilience against centralized control.