This article looks at consequences and implications of the speech about blockchain technology given last Thursday by China's President Xi Jinping last week. It provides an overview of what has happened in China since the speech was announced by Chinese media, and considers potential implications for Bitcoin and other cryptoassets.
The Blockchain Speech Given by China's President On October 24
According to a report by China's Xinhua News Agency (the official state-run press agency of the People's Republic of China), which was published around 10:15 UTC on Friday (October 15), the Political Bureau of the Central Committee of the Communist Party of China (CPC) completed the "18th collective study" on blockchain technology on the afternoon of October 24.
China's President, Xi Jinping, who is also the general secretary of the Central Committee of the CPC, gave a speech that "emphasized that the integrated application of blockchain technology plays an important role in new technological innovation and industrial transformation."
This news was first broadcast on Chinese TV at 11:00 UTC (or 19:00 Beijing time) on last Friday (October 25):
The very first piece of explosion today is from Xinwen Lianbo, the most official TV program of CCP on daily news update, airs everyday 7PM Beijing time— Dovey 以德服人 Wan 🗝 🦖 (@DoveyWan) October 25, 2019
Where “Xi emphasizes on Blockchain tech development and expect major tech breakthrough” was mentioned pic.twitter.com/duxSh6TZXp
On October 26, Mable Jiang published a Medium blog post that provided an excellent translation of the President's speech into English, as well as her own interpretation of the main keywords of the speech.
Consequences of The 'Blockchain Speech'
This speech was remarkable because although blockchain research and development has been going on in the People's Republic of China (PRC) for several years, this was the first that the importance of this technology to the future of the country was emphasized so strongly at the highest level of the government.
So, what happened next?
Effect on the Price of Bitcoin
One of the most immediate consequences was a huge surge in the price of Bitcoin. According to CryptoCompare, the Bitcoin price went up over 32% in less than 24 hours: from around $7,627 at 10:00 UTC on October 25 to $10,076 at 01:00 UTC on October 26.
Of course, it is not clear how much of this gain can be directly attributed to President Xi Jinping's speech. The most likely explanation seems to be that a few players with deep pockets (perhaps, hedge funds) started buying Bitcoin around the time, which caused a surge in the Bitcoin price, and the resulting short squeeze on BitMEX (the largest Bitcoin futures exchange) pushed the Bitcoin price up even higher, which generated FOMO ("fear of missing out") that created some panic buying of Bitcoin (probably, mostly by traders outside of China).
In the following tweet, macro economist and crypto analyst/trader Alex Krüger argues that Bitcoin is a relatively illiquid asset, and that its price can be easily manipulated by "a few guys":
With iliquid assets, one can't rule out price is sometimes driven by a few guys who use news as an excuse to steamroll stops, get the world talking, an maybe generate a temporarily self-sustaining move.— Alex Krüger (@krugermacro) October 26, 2019
Conspiracy theory to some, game theory to others ¯\_(ツ)_/¯
Effect on the Share Prices of Chinese Blockchain Companies
According to a report published earlier today by Chinese media outlet Global Times, "dozens of Chinese blockchain technology-related companies listed on the A-share market closed up by the 10-percent daily limit on Monday amid expectations that more capital would flow into the sector following an official endorsement." (A-shares "represent publicly listed Chinese companies that trade on Chinese stock exchanges such as the Shenzhen and Shanghai Stock Exchanges.")
Effect on Bitcoin and Blockchain Search Volume in China on Baidu and WeChat
Here is a tweet from Dovey Wan, a Founding Partner at Primitive Ventures, one of Crypto Twitter's most prominent and well-qualified commentators on the blockchain/crypto space in mainland China:
Many ppl asked "How's the ACTUAL reaction on the ground to the Xi Blockchain shill in China" Here I did a quick data crunching on Wechat and Baidu search index, found it pretty interesting— Dovey 以德服人 Wan 🗝 🦖 (@DoveyWan) October 27, 2019
Thread 👇 pic.twitter.com/WyAKhAzQD2
As you can see, of the these two search terms, "blockchain" got the much bigger boost on October 25, but on October 26 (i.e. the day after the main surge in the price of Bitcoin), both "bitcoin" and "blockchain" saw similar huge Day-over-Day (DoD) increases on WeChat (244.90% and 276.52% respectively) and Baidu (316.85% and 279.38% respectively), which suggests that it is much more likely that the jump in the volume of Bitcoin searches was caused by the speech and/or the subsequent price increase of Bitcoin rather than the other way around.
The Passing of the Cryptography Law by the National People's Congress
As CCTV.com reported on October 26, on that day, the Standing Committee of the 13th National's People's Congress voted to pass a new cryptography law, which will come into effect on 1 January 2020. Although this report suggests that this law is mainly focused on passwords, Wan, who has read a draft version of the law, says that this is the first law specifically about cryptography, and this tweet summarizes what she believes is the main takeaway:
5/ the key take away is - the developing of new cryptography, hashing algo, even the usage of the tech, will be in the official legal realm— Dovey 以德服人 Wan 🗝 🦖 (@DoveyWan) October 26, 2019
This means you need to follow the CCP standard for all "encrypted" behaviors, which can be VERY broad, from mining to block propagation..
Effect on the Prices of Major Chinese Cryptoassets
Although Bitcoin's price rise has, unsurprisngly, had a positive impact on the prices of almost all cryptoassets, some of the biggest gainers seem to be altcoins that are native to China-based blockchain networks, such as NEO, ONT, and QTUM.
In fact, one of the biggest beneficiaries seems to be Neo, which many people refer to as Chinese's Ethereum. NEO has seen its price go up an incredible 61% since 10:00 UTC on October 25, from $7.049 to $11.39 (at the time of writing). Over the past 24-hour period, NEO-USD is up 10.15%:
Some Potential Implications of the 'Blockchain Speech'
Although it is very hard to predict all of the far-reaching implications of President Xi Jinping's speech in China and elsewhere, here are a few short-term and medium-term potential implications:
- Acceleration in the development of China's upcoming digital currency, which the governor of China's central bank (People’s Bank of China), Zhou Xiaochuan, said (back in March 2018) is provisionally called “DCEP” (this stands for "Digital Currency Electronic Payment”); this is also, sometimes, referred to as the "digital RMB";
- A massive increase in development of educational material covering blockchain technology for schools and universities across China, as well as much more investment in blockchain projects at all levels of government and in all kinds of businesses;
- The upcoming increase in the awareness of blockchain technology in China could lead to a major increase in awareness of cryptocurrencies, the most important of which is Bitcoin, which could lead to a portion of China's population (most likely, the younger generation) investing in Bitcoin (not as means of payment, but as a store of value);
- Increase in the likelihood that U.S. and European financial regulators will eventually allow the Facebook-led Libra project to launch (though, perhaps, in 2021, rather than 2020 as originally envisioned by the Libra Association);
- Other countries will need to significantly step up their blockchain efforts if they don't want to be left behind; and
- The reported banning in China on speech that calls blockchain technology a "scam" means that Professor Nouriel Roubini (aka "Dr. Doom"), who has repeatedly called bockchain a "useless"over-hyped technology, will probbaly not find China a very welcoming place for his thoughts on blockchain technology.
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