China is gearing up for an announcement with regards to how they will tackle and deal with bitcoins or broadly cryptocurrencies. Their are two highly likely scenarios, one is banning the Bitcoin and the other scenario is the regulate it. Most crypto stakeholders expected some sort of regulation for bitcoins to be introduced at some point in the future, thus many have created contingency plans to soften any potential blow in the long run.
So, what kind of regulations might we see? Jihan Wu founder of Bitmain has suggested that the Chinese government may not aggressively regulate the coin. He claims the government want to control the risk for investors who don’t know much about it, one way they might do this is by regulating purchases and sales and regulating exchanges in a similar way they regulate forex and stock brokerage companies.
Such a move will have minimal or no impact on the Bitcoin and may even have a positive impact as a regulated Bitcoin will be seen as a safer investment. Thus removing the cloud of uncertainty over bitcoins status and giving the Bitcoin a more of an authentic status as a form of currency.
Another scenario is what will happen if the Chinese government ban all Bitcoin exchanges? This scenario maybe less likely as many have speculated that bitcoins will not be banned outright. People.cn reported that Bitcoin will face more supervision and ICO’s will be banned due to potential fraudulent acticity, again reinforcing Mr. Wu’s point that he governments emphasis maybe on protecting people’s finances. Again with regulation and a Bitcoin being not just seen as a safer investment but as a safer currency, more companies may choose to adopt the coin and use it to for sales and transactions.
But what will happen if China did really ban the Bitcoin? This will have a short term impact on Bitcoin prices as China accounts for more then 20% of the trade. But what is more interesting is almost all of Bitcoin mining is done in China due to its unlimited supply of cheap electricity. If Bitcoin was to be banned outright, Bitcoin mines shut, exchanges and their assets frozen, this would significantly decrease the supply and availability of bitcoins in the market.
Creating a shortage off bitcoins may see the price of the coin eventually skyrocket according to basic supply and demand economics. It may continue to have a lasting impact as mining will be more expensive as it will have to be done outside China in potentially third world countries that may not have the infrastructure and consistent supply of cheap electricity, thus making mining less lucrative, creating a significant drop in supply whilst demand continues to increase. Such a demand is not just fueled by investors but by companies adopting blockchain technology and are using bitcoins in their early stages to make fast, reliable, anonymous and convenient transactions.
So in conclusion, both scenarios may benefit investors in the long term after the period of panic selling is over, more and more people maybe interested in nabbing a Bitcoin when it is cheaper. After all, its full potential has not been unlocked yet, not even a tip of the ice-berg. Most investors are in it for the long haul.