China killed Bitcoin’s buzz before, and it may kill it again this week. That’s why Bitcoin traders should keep a close eye on Beijing this week, where China’s top officials are gathering for the opening of the 19th national congress of the Communist Party of China (CPC).
Held every five years, the party congress elects the party’s top officials. It is also a forum for a showdown between the conservative forces of the party, which want to preserve the old system of central planning and state ownership and control of key industries –including banking — and the progressive forces, which want to limit government ownership and control of the economy.
Why should Bitcoin traders keep an eye on CPC’s congress? Because the officials and the policies that will come out from this congress can make or break Bitcoin.
China is a big market for cryptocurrencies. And policy changes coming out from Beijing can take digital currencies for a wild ride. That’s what happened four weeks ago when Beijing banned Initial Coin Offerings (ICOs) and Bitcoin trading, sending the digital currency skidding from $5,100 down to close to $3,100.
One theory behind Beijing’s actions argued in this column was that government regulators wanted to appease the conservative forces ahead of the CPC convention, as was the case back in 2011. A few months before the 18th CPC convention, Beijing went after a controversial Chinese corporate structure, Variable Interest Entity (VIE). This structure had allowed Chinese companies to list their shares in US exchanges through “reverse mergers.”
The response to that? Chinese Internet stocks crashed.
But judging from the performance of Internet leaders like Tencent, Baidu, Alibaba, and scores of smaller Chinese Internet companies in the last five years, the crash was temporary, as new regulations put in place faded away.
A similar situation may be at works with Bitcoin this time around. The ban may gradually fade away, once the party convention is over.