The Breakdown - Did China Finally Ban Bitcoin for Real?

Episode Date: September 28, 2021

Today on “The Breakdown,” NLW looks at two major recent stories.  Twitter has added bitcoin tipping features. The features take advantage of the Lightning Network powered by Strike and has started rolling out to iOS users. Additionally, the Twitter team says they’re exploring NFT avatar authentication as well as crypto integration with other monetization features.  Even bigger was the latest out of the People’s Bank of China, which seems to make illegal a broad range of crypto trading-related activities that were, if not approved before, at least in a gray area. Huobi has subsequently suspended new Chinese user registrations and will be gradually shutting down all Chinese accounts. NLW looks at what the implications might be for DeFi and for U.S. crypto regulation.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW “The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Tidal Wave” by BRASKO. Image credit: Iuliya Moshkareva/iStock/Getty Images Plus, modified by CoinDesk.

China fully handing away their influence in Bitcoin is one of the most revealing political moves of this decade. Bitcoin is anti-authoritarian tech. It was never going to work long term with China, at least not the direction that China has been headed. 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 Nidig and produced and distributed by CoinDes. What's going on, guys? It is Monday, September 27th, and today we are asking the question,

did China finally ban Bitcoin for real? Last week, I was heading off a little early. I had to leave for some travel on Thursday afternoon, heading into Friday, and so I thought I'd just get a little bit ahead, right? I'd do a few extra shows, do Friday, do the Saturday weekly recap, what could happen? Then bam, Thursday night, Twitter decides to go ahead and relate. release their Bitcoin tipping features and promise a whole lot of more interesting crypto integrations to come. And then Friday, China goes and releases what seems like a pretty significant ban on crypto trading activity in the country. So here I am sitting far, far away from the microphone and the podcast set up and not able to discuss. But we're going to make up for lost time today.

So let's go back to Thursday and start with the news from Twitter. Tipping has been a feature on Twitter for some time now. It has a feature on Twitter for some time now. up till now been third-party services like Cash App, Venmo, and PayPal, so traditional fiat-based services. Now at the beginning of this month, a mobile developer released some images that suggested that Twitter was working on Lightning integration to enable Bitcoin tipping. On Thursday, that was finally confirmed. Twitter has started to roll out Bitcoin tipping via Lightning.

Lightning was chosen for its low fees, and for now, the features are just for iOS, although Android is supposedly coming soon. The integration was also confirmed to use Jack Mahler's strike. Esther Crawford, the product manager who's running the initiative for Twitter, said, we want everyone to have access to pathways to get paid digital currency that encourage more people to participate in the economy and help people send each other money across borders with as little friction as possible to help us get there. Now, there was no mention of any other crypto assets being integrated in the immediate term,

but a spokesperson did confirm to the block that there are, quote, more to come in the future. They're also looking at ways, according to Crawford, the product manager, at integrating crypto across other parts of its product suite. Quote, there's a lot of internal enthusiasm and dialogue around how can we integrate crypto throughout these different monetization features. There are other potential options that we don't have in place today, but we're really open to exploring it. Now, Twitter has been doing a lot to add monetization features to its system. There is a new ticketed spaces initiative, so you can do a Twitter space, aka a clubhouse chat,

but with tickets that actually cost money. There's a super follows feature, which is sort of a only fans integrated directly into Twitter and probably not NSFW content for at least most of the intellectual type folks who are using it. Then there's also new newsletter features that integrate review which Twitter acquired earlier this year. That, I presume, is the suite of monetization features that crypto might become a part of. Now, there was one other crypto integration that they were talking about more explicitly,

which is NFT authentication for profile picks. As you've heard before, as we've discussed the waves of NFT adoption this year, while part of the kickoff might have come from the digital collectibles and sports space with something like NBA Top Shot, a huge amount of the emphasis this year has been around Avatar NFTs or profile picks. Twitter is, I guess, looking into potentially having some system where people can connect their crypto wallets to prove ownership. Says Crawford again, we're interested in basically making it somehow visually clear that this is an authenticated avatar, and then give you some interesting info and insight about the provenance of that NFT. So that's kind of where we're at today. So what's the TLDR on all this? Well, one, Twitter continues to be on the bleeding edge of Bitcoin,

and it seems crypto integrations as a whole. Two, I don't have the Bitcoin tipping features yet. Boo, big bummer there, continuously checking to see if it's come online for me. But then three, the NFT avatar thing you got to think would be a pretty significant boon to that space. The point that I've made before about NFT avatars is that really it doesn't matter so much who thinks they're stupid or copyable or whatever. What matters is the people you're trying to have status with, who already have something of a social code that you only use an avatar pick of an NFT that you actually own. Potentially, the integration of these sort of authentication features into Twitter

could expand the circle of people who actually care about that and the value of it is a status symbol. But it sounds like that's a little bit down the line, so we'll have to be. have to wait and see. As cool as all this Twitter news is, it pales in comparison to the big story from this weekend, which was China's latest Bitcoin and Crypto ban. On Friday, the People's Bank of China sent a notice to banks and financial institutions with new rules that were tougher than anything we've seen before. I know, I know, Big Yan China bans Bitcoin again, but let's at least look at what's different this time. And I guess first let's go back and look at some of the previous

bands. In 2013, China prohibited financial institutions from offering services related to Bitcoin, but said that Bitcoin could still be traded as a commodity online. In 2017, we got two different bans, the ban on ICOs, initial coin offerings, as well as an exchange ban, which specifically prohibited hosting trades between fiat and crypto. This forced exchanges like Huobi and Binance to set up shop in other jurisdictions, but Chinese users still had access to over-the-counter transactions and crypto-to-crypto-cropos transactions. These new rules have a much stricter bent. Crypto-related transactions, including services from offshore crypto exchanges are now illegal.

Banks and financial services companies are banned from offering any related services, including fiat to crypto or crypto to crypto. Anyone facilitating trades is subject to prosecution, and that includes people who live inside China but work for offshore exchanges that provides services to China. And according to CoinDes, quote, those working in tech support, marketing strategy, and payment and settlement will also be investigated for knowingly participating in the crypto business. That's not all that's different.

This was also signed by 10 different agencies. Previous bans were signed by up to 7. Bill Bishop, who writes the cynicism newsletter, said, quote, it makes it clear it is a multi-agency effort and has a, quote, financial crime aspect because a group of law enforcement bodies are also involved. Some of the agencies that are involved in this particular effort include the cyberspace administration of China, the Supreme People's Court, the Supreme People's Protectorate, and the Public Security Bureau. Quindiske again sums up what they see as China's new view on crypto trading, saying, this most recent ban makes clear that crypto trading activity involves, quote, legal risks, and quote, any legal person, unincorporated organization or natural person who is investing in

virtual currency and related derivatives violates, quote, public order and good customs. Cryptot trading related, quote, civil legal acts are invalid, and parties should be responsible for any losses resulting from crypto trading activity by themselves. When China-based crypto VC firm interpreted it this way, saying, quote, we view this as essentially saying, hold crypto and trade at your own risk. You won't have remedies if something happens. How public order and good customs are defined will become a focus of attention in the future as the current statement is quite vague. This podcast is sponsored by Nidig, an institutional Bitcoin for, firm that sees Bitcoin as a gateway to financial security for people around the world. Find out more at nidig.com slash nLW. That's NYDIG forward slash NLW. So let's discuss now what the fallout has been. Yesterday on Sunday, Huobi posted this message to its website. Dear valued users,

to comply with local laws and regulations, Huobi Global has ceased to count registration for new users in mainland China effective September 24, 2021. Huwobo Global will graduate. retire existing mainland China user accounts by midnight on December 31st, 2021, and ensure the safety of users' assets. We will inform users of the specific arrangements and details through official announcements, emails, text messages, etc. Wobi Global has always been dedicated to offering digital asset trading services and ensuring the safety of customer assets, while following all applicable laws. We apologize for any inconvenience caused and thank you for your understanding and support. Binance as well has suspended mainland China user registration and

OKX currently hasn't made any decisions yet. What about market reactions? Well, globally, Bitcoin took a bit of a tumble, although perhaps not as much as one might have guessed. Local markets are in some ways more interesting. There is currently a negative premium of USDT tether to the Chinese yuan of 4.3%. This suggests that the new rules have spooked some Chinese users to actually try to get out of the markets entirely. Still, mostly in the crypto industry, there has been just a lot of skepticism around the relevance of this. Ulrich Leakey, the executive director at Arc 36, a crypto hedge fund, said yet again the Chinese government has cracked down on Bitcoin. Since 2013, it has done so at least seven times now and twice this year already. While each time this happens, the market reacts

with a price drop, each time the effect is smaller and more short-lived. The China ban's Bitcoin story has gained almost a meme-like status in the Bitcoin community because of this. Pomp reiterated this saying it would seem like a negative thing to have China banned Bitcoin and cryptocurrencies, but the market barely cares after the hundredth time. Maddie Greenspan and analysts wrote China bans Bitcoin. This must be the 117th time they've done this. Anybody still using Bitcoin there is already underground, so now they're a criminal too. Big whoop. Now, a counterpoint. Bill Bishop, who I mentioned before, who runs the Sinicism newsletter, said this is certainly much bigger and more expansive than the destruction of the mining industry.

It could easily be construed as making anything related to crypto possibly illegal under the menu of statutes the notice sites. I said on Twitter, every time China bans us, the price dips for a bit and then a couple months later, everything is back, except we also have meaningfully less China risk. So, shrug? I think this de-risking conversation is really important. This notion that China is gradually pulling itself out of the crypto game means that all of that fud that existed for so long around China's ability to control Bitcoin or crypto is just less and less viable. Indeed, Gonzo Catalyst ratioed the crap out of me on my own post by putting it even more succinctly,

saying you can only ban something once. Afterwards, you're just admitting you couldn't. Another interesting conversation that I saw from a few quarters is a discussion of whether this would drive retail Chinese users to defy. The idea here being that if centralized exchanges leave, the alternative are these decentralized exchanges, right? Jason Choi from the BlockCrunch podcast as well as from the Spartan group wrote, A few months ago I pitched the following sequence of events to my team.

I was too early, but I think it's playing out. One, China centralized exchanges ban retail. Exchange tokens collapse. Two, Chinese retail go to blue chip, eth, defy. Three, realize fees are high explore other L1s and L2s. I think that the discussion of DFI in China is an interesting one, but it brings up easily as many questions of control and tests to DFI as it does answers, but still it's worth keeping an eye on. The other obvious interpretation of this is that it has something to do with China's forthcoming

digital yuan, their CBDC. Matthew Graham writes working theories that China regulatory changes have far more to do with the ECNY rollout than anything else. This is obviously something that we've covered numerous times on this show. We've kind of seen a pattern where first China went after the payments power of the fintech companies like AliPay and WeChat pay, and now one could interpret its shift to focus on crypto as the next thing standing in the way of China's digital currency reigning supreme. But this is a show about power, so we have to talk finally about the biggest dimension, which is what this means for the U.S.-China global macro situation and how that is going

to impact crypto and Bitcoin here in the U.S. Travis Kling tweeted, Crypto sits firmly at the intersection of the largest global macro factor in existence today, U.S.-China relations. The significance of that shouldn't be ignored. It also shouldn't be ignored that China's significance in crypto is being anti-fragiled away in real-time, big shift. I'm not saying China can't punch crypto anymore. They can and they're trying to and they might try harder, but they're losing punching power. That's anti-fragile. So there are a couple different sides to how to interpret the potential impact of this news for the U.S. crypto markets. Dovi-Wan tweeted, basically China is opting out of the crypto game, short-sighted and so desperately.

Authoritarianism is always opposite of freedom, and the faster it's out of the equation, the better. I'm so bullish for what we're heading into, seriously. Zach Herring retweeted that and said, I'll be honest. My gut, and nothing else, so take this as you will, said China's openness to crypto was the only thing holding the regulatory clampdown back in the U.S. who's scared of getting left behind. I'm less certain of the U.S.'s openness now that China has tapped out. So the argument here is that the only reason that the U.S. stayed coy with crypto was to keep pace with China. In a world where there is no China to keep up with, there's no motivation to continue to indulge the existence of Bitcoin and crypto. There are certainly a few memorandes.

members of the House and members of the Senate, who I wouldn't be surprised if we discovered held this type of view. But there is another side. Senator Pat Toomey tweeted, China's authoritarian crackdown on crypto, including Bitcoin, is a big opportunity for the U.S. It's also a reminder of our huge structural advantage over China. Beijing is so hostile to economic freedom, they cannot even tolerate their people participating in what is arguably the most exciting innovation in finance in decades. Economic liberty leads to faster growth and ultimately a higher standard of living for all. That was Senator Toomey's fourth most liked tweet ever. So, which side, which interpretation of this is right? Frankly, that's not really the correct question.

The correct question, if we're looking at this from a U.S. political standpoint, is where we are starting in terms of how much of the U.S. political class is inclined to Toomey's view versus the other side versus the if China's not doing it, we don't need to either. Maybe even more? How many are in the middle? And what does it take to pull them over to our side? I tweeted last night, China fully handing away their influence in Bitcoin is one of the most revealing political moves of this decade. What I meant, ultimately, is that Bitcoin is anti-authoritarian tech. It was never going to work long term with China, at least not the direction that China has been heading. Whatever your interpretation, it is undeniable that the game has gotten even more interesting. And listen, as you're trying to make sense

of it all, I appreciate you hanging out with me over here at the breakdown. Until tomorrow, guys, be safe and take care of each other. Peace.