People’s Bank of China Deputy Governor Pan Gonsheng Doesn’t Trust Bitcoin
You must have serious concerns about Bitcoin. It is a transaction that involves considerable technology. Supply and demand doesn’t quite explain what is driving the Bitcoin market (dare I say bubble)? Currencies as most people understand them, like the dollar, the euro, or the British pound, store value. Thus, that value also fluctuates. However, Bitcoin appears to operate beyond those parameters in a realm nobody really understands.
Central banks control the supply of their respective currencies, depending on wider economic strategies. But generally, bank governors set out to control inflation and/or stimulate economic growth. “Regular” international currencies, such as those mentioned earlier, also offer the investor and the user a high degree of stability; values don’t tend to change overnight. Meanwhile, the People’s Bank of China, which at one point last summer had become the largest single holder of Bitcoin, started to give up.
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Bitcoin’s Success Remains Mysterious
China feels Bitcoin is a market phenomenon that few understand yet. Therefore, it’s hard to control, let alone predict. Indeed, China was responsible for some 90% of Bitcoin trading worldwide. But, fearing a bubble, the PBOC started to ban cryptocurrency exchanges from operating in China. Deputy governor of the People’s Bank of China, Pang Gongsheng trusts Chinese authorities were correct to halt Bitcoin. (Source: “China’s central bank believes bitcoin will die,” Quartz, December 4, 2017.)
Pang believes that Bitcoin faces one of two scenarios, neither one of which promises anything for which you should consider risking your savings. As if you needed reminding, if you’re reading this, bitcoin went over the $11,500 mark, meaning it has gained more than 10 times its value in less than a year. Pang clearly fears that had China continued to allow bitcoin trading, the value of bitcoin could have gone higher in a speculative bubble. He hinted that the bubble could have burst just in another case of the tulip bulb market in the 1600’s (“Tulip Mania”) or the Internet/dot-com bubble of 2000. (Source: Ibid.)
Alternatively, should bitcoin not burst in a bubble, it will risk being stolen. Literally, hackers could break into the blockchain technology that governs its trades and value. Pang also mentions the rising potential that more governments could follow the Chinese path, banning bitcoin outright. (Source: Ibid, Quartz). Time will tell (not a very long time, mind) if Pang is correct. For the time being, bitcoin investors remain optimistic.
Even the Chinese ones. The bitcoin exchanges that the People’s Republic has shut down have simply moved shop abroad, while former clients continue to trade have moved to peer-to-peer marketplaces to continue their trades. But here’s the catch: just because trades are continuing abroad, it doesn’t preclude any of Pang’s scenarios from materializing. He may still be right.
