China's "Ban" Won't Kill Bitcoin

Brian Hicks

Updated December 10, 2013

Bitcoin is like a rebel. Authorities are trying to contain it because it doesn’t fit into the mold they desire for currency, but they aren’t going to have much luck.

bitcoin pileThe authority in this case is the Chinese government. It recently banned the use of Bitcoin, and while this is causing some depression for the virtual currency, it won’t be too long before it starts to gain momentum again.

Upon the banning of Bitcoin in China, the country’s biggest search engine, Baidu Inc., decided to stop accepting it as a form of payment since central banks can’t handle the transactions any longer.

Due to this recent turn of events, Bitcoin fell by 20 percent to 4,250 yuan, or $863. It broke $1,000 just last week, which is a significant increase from two months ago when it was worth just $138.

Bitcoin Regulation

What the Chinese government really wants is to regulate Bitcoin, but since it’s a virtual currency and users are anonymous, this has proven difficult. For this reason, the government would rather see it just go away.

But consumers don’t want this. Because the currency is anonymous, it isn’t taxed by governments, and consumers can do whatever they please with it. The goods people can buy with Bitcoins are increasing; people can now buy anything from cupcakes to electronics. What’s even more surprising – and quite exciting – is that Tesla Motors Inc. (NASDAQ: TSLA) just started accepting it for the Model S electric car in California and Florida.

Bitcoin has gained traction, and it unlikely anyone can stop it now.

As long as people aren’t using it for illegal purposes, the United States has indicated that it’s on board with accepting it. But what about China? Will it be as accepting after it gets over its initial opposition for it?

The biggest complaint from the People’s Bank of China is that Bitcoin doesn’t carry “real meaning,” so it can’t hold the same legal status as currency. The central bank in China has told its citizens they can use the virtual currency, but they must take on the risk themselves. The bank’s intent is to scare people enough to shake Bitcoin out of the limelight. The country is just too scared the virtual currency is going hurt capital and financial stability.

China Gives Bitcoin a Push

China’s anxiety over Bitcoin is legitimate, but the worst thing it can do is try to restrict it. The more it does, the more people will want to harvest and invest in it because value will rise.

It’s just like trying to restrict a rebel. Authorities give rebels a cause when they contain them.

Bitcoin is a virtual currency, which means if China won’t accept it, the Chinese will find other ways to use it. They can still use it online, and with the online world expanding by the minute, there’s no hold on what investors can do with their virtual currency.

The Chinese are some of the biggest investors in Bitcoin. Li Xiaolai is the country’s biggest Bitcoin holder, and he reports that his stash is worth six figures – with the first number being 1. That means he could be holding as much as $100 million.

Bitcoin is used heavily outside of China as well, and it’s the world that is driving the currency forward, which means the Chinese will continuing investing in it and making money off of it despite the government.

This is just a hiccup in the use of Bitcoin in China. It’s actually probably fueling it more than putting a stop to it. It’s no secret the Chinese love to gamble, and Bitcoin is now the risk they’re taking on.

What’s even more enticing is the interest that comes from younger investors. Those just starting out in the investment world don’t have a lot of money, but they’re drawn to Bitcoin. The tech side of it is even more attractive for the upcoming generation of investors.

So has the Chinese government slowed down the growth rate of Bitcoin? No, it just gave Chinese investors a push by causing a dip that excites the gamblers. Investors will now get to work to find new ways to make more money from the virtual currency.

What does this all mean for you? If you’re not investing in Bitcoin yet, you may want to get in now. The dip from the ban in China is the perfect time because if Bitcoin rises from it, you’ll end up with a nice return.


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