Bitcoin seems to be proving George Soros’ thesis that China’s economy is in for a “hard landing,” that could take down the Yuan.
The cryptocurrency has been hitting new highs lately. It rose to $545.76 on May 29, 2016; before falling back to $517.85 later in the day, according to CoinDesk. As recently as March, a bitcoin was worth $397. Observers; like ZeroHedge’s Tyler Durden, credit rising Chinese demand for the block-chain money’s sudden surge in popularity.
Durden noted that demand for bitcoin has been increasing as the Chinese government has stepped up efforts to halt the flow of currency out of the country. Back in September; when a bitcoin was fetching $230 in the open market, the People’s Republic started trying to enforce a prohibition on moving more than $3,300 (20,000 Yuan) out of the country in a day.
The Largest Capital Outflow in History
The opportunity Bitcoin provides here is obvious; it lets almost anybody transfer large amounts of money out of the country anonymously. Durden thinks that this could become the largest capital outflow in history and he’s not alone.
This could create some serious problems for China’s government. What happens, when everybody in town can convert the funds in her bank account into another currency at the touch of button, and do it anonymously. Worse now everybody; from the cab driver to the billionaire, can move his cash out of the nation at the touch of button and do it secretly.
Many of the traditional tools that central banks use to “fix” the economy; such as devaluing money and currency controls, would no longer work in such a situation. Such tools traditionally hurt average people but spare the rich and politically connected; who can quietly move their funds overseas before they are enacted. Now everybody has that luxury; and they can do it with more privacy than the rich have, thanks to blockchain technology.
How will authorities react? Will they try to turn off the internet, or ban bitcoin? History teaches us that such actions are the kind of overreaction which can trigger revolutions.
Soros is Right about China
In January, George Soros created quite a storm by predicting that China was in for a yard landing; that could bring the Yuan crashing down. Naturally, the Chinese government denied those claims; but the recent bitcoin activity indicates that a lot of average Chinese agree with Soros’ assessment of the situation.
It looks as if George was right; China could be in for a real nasty crash. What’s interesting is that crash; could be what takes Bitcoin into the big time, and turns it into a viable currency. One has to wonder how the world’s governments will react, and when Soros will start shorting bitcoin.