Does The Volatility Of Cryptos Justify The Chinese Ban On Crypto Trading?

Several Founders, Co-Founders, CXO Bankers, CXO Fintech professional & people who participated in the ePanel discussions:

  • Mr. Sridhar R, former President & Credit Risk Officer, Lakshmi Vilas Bank
  • Mr. Ajay B Panicker, CEO & Founder, NetPay Limited
  • Mr. Ravi Shankar, Co-Founder, and CEO, Active Intelligence Pte Ltd
  • Mr. Rahul Shah, Head – Technical Integrations and Pre Sales, FIS
  • Mr. Rana Sinha Ray, former Head Technology, TimesofMoney
  • Ms. Aishwarya Jaishankar, Co-Founder Hyperface Technologies
  • Mr. Sunil Kulkarni, Fintech Advisory & M&A, Alamak Capital Advisors
  • Mr. Avro Mukerji, Investment Counselor- NRI Burgundy, Axis Bank
  • Mr. Vikas Choudhary, Founder at Intelligent Payment Solutions Pvt Ltd
  • Mr. Vikas R Panditrao, Co-Founder, Forum of Industry and Academic Knowledge Sharing (FIAKS)
  • Many other CEO/CXO Bankers & Fintech professionals on FIAKS Forum requested to remain anonymous

On May 19, 2021, Reuters reported: “China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading. China has banned crypto exchanges and initial coin offerings but has not barred individuals from holding cryptocurrencies.”

Members speculated over the high volatility of cryptocurrencies:

  • Never understood the valuation of bitcoin, dogecoin, ethereum, and other cryptocurrencies. Seems to be like some variation of the greater fool theory.
  • FIAKS had posted its position on 20th Feb 2019 & still stands by it:
    1. FIAKS would prefer currency for which we have some regulator whom the customer can approach in case of an issue. Not decentralized.
    2. We would not like customer saving to valued  at USD 10,000 today and tomorrow it’s USD 6,000 and the next day it’s USD 14,000
  • A participant concurred: If I am buying USD I know that fluctuations are likely, But with cryptocurrency, no one can be sure of the range and frequency of those fluctuations.
  • From the Reuters article as well, it appears that China is banning all crypto other than their own crypto due to their speculative nature.

Looking at the volatility through the perspective of China’s digital currency:

  • Look at what happened recently with dogecoin. Currency values that are highly sensitive to the market could potentially destabilize the economies/ wealth of people, this is the right move by China to avoid people gambling and losing money on cryptos!! They are refusing to acknowledge it as an investment class to be offered by institutional wealth managers is how I am reading this, fair play!
  • This opinion was seconded by another participant: Stringent but fair. Cryptocurrencies are highly speculative with no sovereign backing and driven completely on sentiments. A simple tweet can lead these currencies in a tailspin as we saw recently. It’s way too early for any country to adopt these currencies for mainstream banking, trading activities, or as a hedge against debt.
  • Moreover, any country which contemplates bringing its own digital currency as a first step will try to impose such bans. Otherwise, it will take a long time for state-owned cryptocurrencies to gain popularity or trading value.
  • China is running a digital currency (YCC) officially through PBC. It has been ‘ listed’ meaning there is an exchange rate to the dollar to start with. China is running its YCC as a permissions system which means that anyone cannot mine coins. The above ban suggests other predecessors that include BTC etc cannot be dealt with through China’s institutions. This means it kills competition and of course improves the acceptability of YCC.

Lastly, the YCC model of sovereign issuance, control, and reduced speculation would ensure less swings in value. All this in return for less chaos is acceptable, isn’t it!

An instrument of savings cannot have a very volatile value. And it cannot be based on a speculative element. A currency to be accepted must also be a unit of value for a transaction. This is what people are attempting by using it for luxury cars etc.  However, Tesla’s U-turn where it stopped accepting BTC has been a wake-up call.

Where does Tether enter in the picture?

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2021-07-04T00:49:19+05:30July 4th, 2021|Categories: FIAKS bespoke|Tags: |Comments Off on Does The Volatility Of Cryptos Justify The Chinese Ban On Crypto Trading?
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