The Breakdown - Chinese State Media Indicates China Is NOT Banning Crypto Trading

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and produced and distributed by CoinDest. What's going on, guys? It is Thursday, June 3rd, and today we are talking about why Chinese state media is indicating that China has not, in fact, banned crypto. First, however, let's start with a quick update on RAND. Since I dropped that episode yesterday, I've had numerous people send me articles and media accounts blaming the ransomware epidemic on Bitcoin or crypto in general. NPR called it the oxygen behind the surge. So unfortunately, my very easy prediction of ransomware being the next Bitcoin fud

Starting point is 00:00:55 seems coming to pass. But I also wanted to share an interesting take I saw from a couple folks that was really well put by Andy Edstrom, author of Why Buy Bitcoin. He tweeted, Bill Gates becomes multi-billionaire by shipping insecure software. U.S. government pays hackers for zero-day exploits and keeps them instead of telling software companies to patch them. Equifax loses 100 million plus identities and stock reaches all-time high. What will solve this other than ransomware? Basically, the idea that I think that Andy's going for is that ransomware is the natural market byproduct of insecure software. By the same token, however, it creates the financial incentive

Starting point is 00:01:31 for that software to be improved. In a world of ransomware, The costs to buying or building insecure software go way up, which presumably gives the advantage to less exploitable software. Yesterday, we also talked about the impact that insurers play in this, potentially making companies more willing to pay ransoms because they know they'll be covered. However, insurance companies seem to be making moves so that might not be the case, or at least it won't be that easy. The Financial Times ran a story called Cyber Insurers recoil as ransomware attacks skyrocket.

Starting point is 00:02:02 According to the piece, from April to mid-May, premiums jumped 27% year-over-year. Others are putting in tougher underwriting controls in place like AIG, who added 25 additional detailed questions about client's security measures and is reducing its limits on ransomware. Interestingly, the piece interviewed Sarah Stevens, the head of cyber for the International Division at Marsh, which is the world's biggest insurance broker. Surprisingly, she doesn't point to crypto as the culprit in this ransomware epidemic, but the change in the distribution of ransomware software itself. Quote, as ransomware as a service really took off, we've seen the complexity, the frequency, and the severity of

Starting point is 00:02:38 ransomware incidents just skyrocket. Obviously, this is a story that's going to continue, but I hope this sort of voice that focuses on the actual mechanism of distribution of the software in question itself and on the financial incentives that surround it are going to start taking more of the blame from the all-too-easy fall guy of cryptocurrency. But with that, let's shift gears a little bit, and our main discussion has a bit of a Bitcoin and Geopolitics theme. Before I get into it, I want to give big ups to coin desks on Abadikova and the Blocks Wolfei Zhao for their translations. Without them, we wouldn't have these stories so quickly, and I wouldn't be able to do this podcast so soon after news happens around the

Starting point is 00:03:17 world. So first, let's go to Russia. Alexei Navalny is the main opposition leader in Russia. He's currently imprisoned, which I suppose is better than the dead that the state has indicated they want him with numerous attempts on his life. He was poisoned last fall by a chemical weapon. Then in May, the Anti-Corruption Foundation organization that he leads was labeled an extremist group by Russian courts, leading them to disband. Also in May, a database of people who had signed up on a website to support Navalny's protests was stolen, leading many of those people to be doxed and some to lose their jobs. Earlier today, Leonid Volkov, the head of Navalny's Volunteer Network, made a video addressing supporters. He said that,

Starting point is 00:03:54 despite recent crackdowns, they would be continuing their work, but to do so they needed financial support, and traditional institutions monitored by the state weren't going to cut it. The answer? You got it. Crypto. Quote, if the authorities are pushing us out of fundraising via the banking system, we will be patiently teaching everyone to use cryptocurrencies and learn ourselves. There are some serious gems in this broadcast. He also said, cryptocurrencies are a real substitution for money. It's not a toy. Their advantage is that they are not controlled by any central banks or governments, so it's hard or even impossible for the governments to track them. And here's an even better one. Quote, crypto is not an illegal version of a bank

Starting point is 00:04:35 transfer. It's a legal and safe replacement for cash. This is such a simple, clear way to make the distinction and to bite back at the idea that crypto is just for criminals. The cash equivalence argument is, I believe, a fundamental argument for privacy in cryptocurrencies, and privacy in the future of central bank digital currencies. Unfortunately, I tend to think cash is in its swan song for exactly the reason that it can't be easily surveilled, but that doesn't mean that we shouldn't still make the argument. Looking for the best way to unlock your crypto's liquidity,

Starting point is 00:05:13 nexo.io is exactly what you need. Borrow against your digital assets at just 6.9% APR, earn passive income with yields of up to 12%, and swap between more than 100 market pairs with the instant nexo exchange. Try the NXO Wallet app to get the whole 360 degrees of crypto banking. Get started at NXO.io. That's N-E-XO.io to get started today.

Starting point is 00:05:40 Let's move over now to China, and there's a great update for those who have been following the story of China's recent anti-crypto actions. I'm going to assume that most of you have listened to a few of my podcasts on the subject or have read some stories, but I'll give a couple of relevant pieces of context for this particular story. The first is the larger thing happening around all of these discussions of China and crypto, which is, of course, their digital yuan. China is in the midst of its 10th live trial for its forthcoming digital currency. This is the biggest one so far, giving away 200 yuan, about $31 each to 200,000 Beijing residents for a total spend of about 6.3 million. It's important to understand what the digital yuan efforts are really about, though, and I think they're broadly speaking two parts. The first is domestic. China has been trying to clamp down on the power of fintech companies

Starting point is 00:06:29 whose apps, like Ali Pay, had been growing not only in usage but in the breadth of bank-like functions they offered. China has been working to bring those companies to heal, going so far as to force structural changes to ant-financial that brought them more in line with banks and so could apply bank-like regulation. China also seems keen to integrate those players into the digital yuan ecosystem. The second goal has to do with the globalization of Chinese currency as a settlement currency and as a reserve currency. Chinese R&B as a settlement and reserve currency lags far behind the percentage of trade that involves Chinese goods, and the digital yuan effort seems in part to be aimed at redressing that and taking share from the U.S. dollar.

Starting point is 00:07:08 So if that's the larger context, there are two specific stories from the past few weeks that are relevant for this discussion in particular. The first came when a group of intermediary financial institutions co-wrote a letter reminding their members that, as per 2017 policy, they were not to engage with cryptocurrencies directly or have dealings with persons or companies that did. This was reported in some parts of the mainstream media breathlessly as a new ban, which it was not. However, the timing of the policy reiterations seemed relevant. A few days later, there was a much more significant moment when the Vice Premier mentioned anti-crypto action in the context of a larger speech on financial stability.

Starting point is 00:07:43 The details of that were scant, but what got people paying attention was, one, the fact the the statement came from such a senior executive, and two, the fact that minors in China seem to be taking it very seriously. The next weekend, we saw miners selling Bitcoin to move to cash in a big way. But given that there weren't a lot of specifics, many were also waiting to see how this new mandate would play out. Would it just be focused on Bitcoin mining? Would it target crypto trading or ownership as well? Well, we've got some insights into that from a slightly different source, Chinese state-owned media, specifically Shinwa News Agency and China Central Television. Now, let me be clear right away that these new agencies have not become crypto bulls. In fact,

Starting point is 00:08:21 it's the opposite. These stations have published a series of reports that are aimed at getting people to avoid crypto markets. They focused on rampant market manipulation, scams designed to defraud retail investors, and the ease with which blockchain tokens can be created out of thin air. Shinwa even went into detail to discuss why it was going after crypto so aggressively, talking about, again, coins being created out of thin air, energy usage in crypto mining, and companies in the space skirting around regulations. So this is bad, right? Well, it certainly, lays out the Chinese government's argument about why people shouldn't get into crypto. But these reports also reified that citizens still ultimately could make their own choices. Here's the key

Starting point is 00:09:02 line from Shinwa. If virtual currencies like Bitcoin are treated as virtual commodities that can be bought and sold, then the general public has the freedom to participate in the trade at their own risks. This is a reaffirmation of the uneasy middle space China started carving out in 2017, Despite widespread reportage of that action as a ban as well, what it was was actually a ban on financial institutions and fintech serving crypto-related clients, a direct impact of which was to cut off Chinese crypto exchanges fiat-onramps. It stopped short, however, of outlawing buying, selling, or owning crypto. This has been a widely misunderstood point about China's relationship with crypto. Since then, the Chinese market has been driven largely by over-the-counter desks, many organized via chat apps.

Starting point is 00:09:47 So again, I don't want to overstate this as some big about face. What it is is simply a continuation of the same uneasy middle path of crypto and China. This doesn't mean things couldn't turn on a whim with a much more aggressive crackdown. But for now, it means that the worst case scenario for Chinese citizens in the crypto industry that some had feared, which would have been outright bans on crypto trading and ownership, have not come to pass. As ever, it is incredibly important when we discuss state action to actually get the details rather than just react quickly and repeat anything that we happen to see. Hopefully this podcast helps you in getting that nuance, and I appreciate you listening along the way. Until tomorrow, guys, be safe and take care of each other.

Starting point is 00:10:27 Peace.

The Breakdown - Chinese State Media Indicates China Is NOT Banning Crypto Trading

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