The Breakdown - Narrative Watch: The New China Narrative, 2019 Edition

Episode Date: October 28, 2019

China has had an ongoing role in the crypto narrative. For much of the history of the industry, it was about control of mining. Now, something new is happening. As the crypto industry gets caught up in the larger battles to shape the future of the economic order, digital currency is center spotlight and China is racing into a leadership position. Last week's comments on blockchain from China's President Xi Jinping were like a starting gun. So what's the China narrative now?  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another narrative watch. What's going on, guys? It is Monday, October 28th, 2019, and we are still racing to catch up with ourselves around last week's craziness. So obviously last week, we had Mark Zuckerberg testify about Libra in front of the House Financial Services Committee, and then hours later, it felt like a day later, we had Chinese president Xi Jinping talk about blockchain in explicit terms, setting off a whole new race. And really, that's kind of where I want to pick this up is the China narrative, 2019 edition, right? So I saw this tweet from Arthur Hayes this morning, old Bitcoin narrative 2013, 2017, China.

New narrative 2019 to question mark, China. History doesn't repeat itself, but it sure does rhyme. So that's obviously from Bitmex CEO, Arthur Hayes. So what is the new China narrative? I think that's the really important thing, right? And so let's go back. In some ways, the China narrative before, I think is almost two parts. One is the specifics around mining, right?

China's role in mining has always been a centerpiece and a central battle. So you have this article here from June 2016 from Nathaniel Popper at the New York Times, how China took center stage in Bitcoin Civil War. And obviously this gets into things like Bitmain and Roger Ver and BCH and all that stuff, right? So that was a lot of China before had to do with mining. Then China 2017 bans all exchanges and everything moves to OTC trading. And it's kind of it's there, but it's less obvious what the China narrative is in some ways. It's behind the scenes.

However, at the same time during that time, during that 2017-2018 period, we see the rise of vaults in this whole different category of Asian investor and Asian exchange that are really pushing the paces of innovation in the space as it really. relates to the specifics of how people are buying and trading, right? So I think in some ways that China narrative gets moved over in some ways to a larger Asia, or maybe even better put, like not U.S. narrative, right? This narrative started to emerge during the alt-coin times and during the ICO times of America is maybe losing its edge in innovation. And now there's tons and tons that reasonable people could debate and have debated and will continue to debate about how much America wants to be the place for ICOs and things like it. But I think it's hard to deny that for the first time really in the history of a technology,

you had development happening not just not exclusively in America with us exporting the technology elsewhere, but in fact, really strong arguments that it was developing more quickly in other parts of the world, which is a fundamental break with history in some ways. So anyways, you have all of this stuff happening. But really what jump started, what I believe, is kind of the next phase of the China narrative, was the announcement of Libra. So Libra kicks off in June, July, right?

We start to hear about it. It immediately causes a huge amount of attention everywhere. And for the first time, governments are taking this whole idea of kind of digital currencies seriously. And I think part of that, you know, in the U.S. we saw that the standard disposition of U.S. regulators seemed to be that Bitcoin was a digital gold. It wasn't really scary. It didn't really threaten the U.S. dollar status as a world reserve currency.

Whereas that might not be the case for Libra because it had Facebook's 2 billion plus users as a built-in as a built-in starting point, right? And so pretty immediately you see that type of reaction coming from the U.S. They're taking it as a much more serious threat to the role of the dollar. in the world, but you also see governments around the world start to take digital currencies more seriously. Immediately in Europe, there's kind of a hell no Libra effect where you have Bruno Lemaire in France and his counterparts in Germany saying Libra can't happen on German shores, Libra can't happen on French shores, Libre can't happen in Europe, but we should be looking into our own version of a digital currency, right? That's actually led by the central banks of

these European nations. You saw Mark Carney from the Bank of England suggest a synthetic hegemonic currency to replace the U.S. dollar at a Fed meeting in Jackson Hall, Wyoming. But China really had the most aggressive response in some ways. So this is, I think, emblematic of the type of response we saw almost immediately as soon as Libra hit the stage. X People's Bank of China Chief says China should prepare digital yuan to counter Facebook's Libra. A couple weeks after this, we saw reports that the digital yuan could come as early as November of this year.

And so on and so forth. So that really, we saw a huge acceleration. in not just the development of a Chinese digital currency, but their vocal articulation of that being their goal in it coming right down the pipe. Now, at the first Libra hearings, where David Marcus testified before Congress and Senate and the Senate, he used, he invoked China, I would say. He didn't go get explicit. I mean, I think he did say the actual name of China at some point or another, but he tried to dance around. He tried to kind of focus the narrative on this idea of banking the unbanked

and antiquated financial structures being bad for millions or billions of people around the world and Facebook being able to help. And he kind of minimized the geopolitical ramifications of Chinese leadership. In fact, he talked more about Ali Pay and Wepay chat than he did about just China explicitly. That had changed significantly going into last week's hearing. So this article was on CoinDesk the day before the hearing, which is last Wednesday. And it's titled, Facebook's Marcus says China wins with the last week's hearing. digital R&B if U.S. Nix's Libra. So we saw a real, real shift. I would call it a real

politics shift in the Facebook narrative that Zuckerberg presented, right? So if you cut through the whatever five and a half hours of just Instagramable gotcha moments from congressmen trying to tee up their next fundraising letter, the substantive parts tended to focus around the role of the U.S. dollar in the world. So you can see here Taylor Monaghan grabbed a clip. And I won't play the clip right now, but I'll summarize. or I'll grab the quote that she used. This is from a congressman asking Zuckerberg questions. He says the U.S. dollar is very powerful and is a tool of U.S. power.

We'd rather enact sanctions than send soldiers. It makes us nervous when that is threatened. Do you understand that? And Zuckerberg comes back. If we don't innovate, we cannot continue to project that influence globally. So basically, there was a real acknowledgement in explicit, explicit terms on Wednesday of last week at this hearing that Facebook was willing and interested in playing the U.S. and the U.S. dollars global power game. And that was that, I think, in some ways, moved not so

subtly into the central role of the Libra narrative, of the Wai-A-Lao Libra narrative. I think in some ways it's almost like the next dimension would be for Facebook to be explicit about the idea that it's almost an urgency thing, right? Where China is doing it now, you're too late to do the digital dollar as such or as you might have wanted to. You kind of have to have to have with us and maybe that brings concessions maybe the Libre does launch as a US USD one-to-one kind of thing for that reason but that's all speculation the point here is that we've shifted the Libra narrative now in Congress to really it being about the the the threat of China right okay so within hours it felt like really

it was about a day China responded right so I made a joke that Zuckerberg is basically like if we don't do it China seriously will guys and China the next day is like okay let's do it and so what I mean by that is that Chinese president she said in public statements that were very intentional right this wasn't on off-the-cuff reporter's comment or question it was a very specific intentional statement that was later broadcast out you know to Chinese TV around the country that blockchain was a generation technology that they really needed to get up on, right? So you see Pomp here. And Pomp really kind of categorized one side of the responses, right? So he says, breaking. Chinese president

Xi Jinping just publicly supported China going all in on blockchain technology across their economy. This will be the space race of our generation. America has to embrace the technology, including Bitcoin, or risk being left behind. There are a lot of people who had this take, this immediate response too, right? And it was jarring. It was really jarring to see, on the one hand, these US regulators who clearly haven't engaged with this very much and just being dismissive and talking about these things that are almost totally incidental to what theoretically Libra was there to talk about or Facebook was there to talk about. And then on the other hand, you have China, this kind of austere command and control type of government going all in on this thing.

And it's kind of fragging to the brain in some ways. However, there was a counterpoint too, which I think bully here really sums up. He says, China likes blockchain because it dramatically improves its surveillance apparatus, perfect data forever. If we don't start prioritizing data privacy, we're handing authoritarian regimes an incredibly sophisticated tool to track and ultimately oppress their people. So basically you had these two responses. Like one, we're being left behind and two, this is exactly a reminder that blockchains can be tools for authoritarian's as well. Of course, neither of these are, these aren't mutually exclusive, right? We can be in the U.S. being left behind. And at the same time, we don't need to necessarily laud the fact that these

things are, you know, President Xi wasn't embracing Bitcoin. He wasn't embracing open, public, permissionless ledgers, right? He was embracing an amoral technology that existed underneath them. That can be used for a lot of different things, including a lot of them that we wouldn't necessarily like that much. But so you have this immediate response, and again, we're kind of, we're ascending into what is emerging as a new China narrative. And I think the reason to highlight these two different responses is that we're now seeing a narrative battleground on what the China blockchain narrative is. Is it like leaving the U.S. in the dust? Is it tools for authoritarian? Is it both of those at once? Or is it something else? Right. Okay. So there was another response to this. So what happened next was

that the price of Bitcoin went absolutely frigging crazy, right? We went up from the mid-7,000s to touch 10,000 before we were tracing down to the 9,000s. But it was a huge, huge move. It was one of the biggest days in Bitcoin history in a single day. And a lot of folks were pointing to China for that reason. And some folks basically were kind of calling BS on that, saying, you know, just because the Chinese president says blockchain, we think it's causing all this. And the response was from some, I think, caught up or categorized or summed up right here. So this is Sue from over here who says 1 billion plus people will see this news. Search volumes and web traffic will balloon. Bears will be covering shorts and flipping long. Parents will be urging kids to learn crypto and blockchain. So basically

this argument is that it almost doesn't matter what was said except in so far as it was, it had the word blockchain and it was relatively positive. And what really matters is going to be the ripple effects, right? That you're going to see a huge amount of energy and attention now poured on this. And that it's basically a signal from President Xi to the rest of the Chinese, that it's on. Blockchain is now a part of the global economic game and they should get in. And so Dovi basically went through and actually looked at this. She says, many people ask, how's the actual reaction on the ground to the Shi blockchain shill in China? I did a quick data crunching on WeChat and Baidu's search index and found it pretty interesting. This was the

stat that I saw. Baidu, where most newbies actively search for stuff they come to know for the first times, he's a whopping over 1,300 percent increase in blockchain search on the 25th. past Bitcoin. Bitcoin query also dipped, stayed flat on 25th on WeChat and jumped back up on the 26th. So basically, both Bitcoin and blockchain are up in the wake of these comments, but especially blockchain has now skyrocketed. But that's not all. You see another tweet from Dovi, 12 hours after the major she pump. One, blockchain headlined on people's daily print version today. Two, top universities in China start blockchain course offering overnight. Three, expect to see massive blockchain initiatives from local municipal soon. The ripple effect is

strong. More, she goes into a Waybo, People's Daily, the CCP's official newspaper, tweeting about blockchain, and that's just today. And she says the TLDR Bitcoin, just one of the blockchain applications and blockchain will apply to many other domains. So basically what she's saying is that there's, in the wake of this, not only our searches going up, there's a huge amount of new initiatives, new university programs, just people who are cascading into this space, basically given cloud cover by these statements. You saw on CoinDest this morning, from banking giants to tech darlings, China reveals over 500 enterprise blockchain projects. The takeaway more than 500 blockchain projects have been registered with the Chinese government since March. The filing

reveals some of the largest Chinese banks and tech companies working with the technology. Several government offices, including courts and tax bureaus, are testing blockchain platforms to execute administrative tasks, the filing show. And so then where we are is this, right? So, Michael Casey, the new chief content officer at CoinDesk says, China seizes the blockchain opportunity. How should the U.S. respond? So, okay, so where are we with this new narrative? What is the China narrative 2019 edition? I think there's two parts. I think that it is still emerging. I don't think, I think it's overly simplistic to just look at it as like enterprise blockchain or I think it's even overly simplistic to just look at it as a tool for authoritarian, like we were kind of

talking about before. I certainly think it's too overly simplistic to think about it just for from the trading standpoint, although certainly there's a lot of action going on as people try to compete to understand what this narrative is. But I wanna go back to Dovey one more time because I think that this kind of catches the first part of my feeling. So she says, however, the blockchain good narrative

is primarily crafted for digital R&B in my opinion, which will compete for store of value and third world nations where China has political influence. So number one, I think that the broader game here remains the digital currency. game, which is really, in fact, just the currency game. The battle that is being fought right now is what is the future of the global monetary system going to be? Who is going to be at the center of the global economic order? Is it going to be China? Is it going to be the U.S.? And one of the

major battlegrounds for that is the actual currency. We've seen skirmishes before even getting into the digital aspect, which we saw with kind of the trade war machinations earlier this year and China devaluing the yuan again. But I think that the reality is that China has decided, and in so doing basically making it a self-fulfilling prophecy, that the currency wars will be a digital currency war. Meanwhile, the U.S. is still deciding what a digital currency is supposed to look like. So China has basically shifted the terms of engagement for this particular front in the larger economic battle of our times and is going full bore at it, right? Going full throttle. I do really think that this is much more significant in many ways than even where China has

been before, right? Because we're now crypto itself and Bitcoin itself have been upleveled to a very different larger context, which is this global currency war. And in some ways, I find that Bitcoin is like we're going to be for a minute the weird third party candidate, right, where you have whatever the US digital dollar is, whether it's an actual digital dollar or the Libra or whatever versus the Chinese digital UN and then Bitcoin is going to sit over here and I don't necessarily think that's a bad place to start. I think that all the benefits of it rather than trying to kind of cram all of the things that are going to make those currencies convenient and surveillable into Bitcoin, I think allowing it to be a truly open permissionless censorship resistant alternative is very powerful.

But that is the stakes of the game in my estimation. We are not talking about just mining control and things like that, as big as those things are in our little part of the world. We're talking about a fundamental battle on the economic order stage. But then the second part of this kind of emerging narrative competition is where talent wants to be. So Crypto Dog tweeted out just a sentiment, which he's certainly not the only one and I've seen from lots of people, getting mad Asia FOMO. I'm going to be spending a lot more of my time in China. I was going to, regardless, but now I have fear and anxiety.

I'm not already fully up to speed. I feel like a complete buffoon. I can't speak proper Mandarin yet. Am I the only one? And I think that this is still a leading indicator, not a lagging indicator. I think that you have so many people in this space who are willing to go put themselves in the middle of things and who are looking to Asia and China specifically to understand and saying that if I don't understand this place in this different kind of economic order, I'm missing something fundamental as it relates to some of the most important conversations and challenges and competitions going on in the world at large. So the China narrative 2019, we have up-leveled it significantly. I don't think that we've defined it.

I think that it's still going to be a battle for how much it's fundamentals, how much it's trading, how much it's just a political football. All these things are going to be debated. But what's for sure is that it's back. It's big and it behooves us to understand. Anyways, guys, thanks for listening. Thanks for watching. And I will be back with our regularly scheduled 3 at 3 tomorrow.

All right. Cheers, guys.