President Xi Jinping of China, speaking to G20 summit in Hamburg on July 7, 2017 (via Wiki commons).
Asia & Australia,  Bitcoin

No, China’s President Xi Jinping didn’t cause a Bitcoin rally

Pundits and maximalists are just trying to see what they want to see

Like 1960s campus radicals, Bitcoin maximalists are enthusiastically praising the wisdom of a leader of Communist China. That’s because President Xi Jinping  called for his country to “take the leading position in the emerging field of blockchain.” 

In doing so, Xi launched what the well-known podcaster and Bitcoin uber-bull Anthony Pompliano quickly called “the space race of our generation” on Twitter. “America has to embrace the technology, including Bitcoin, or we risk being left behind,” he warned.

Anthony Pompliano, is that you front and center? (via Wiki commons).

Given Xi’s near-complete hold on power and the flurry of pronouncements and exhortations of support that quasi-official Chinese sources released over the next few days, the Morgan Creek Digital index fund co-founder’s comment doesn’t sound unreasonable. 

Later that day, however, the Bitcoin $100,000 proponent was back on Twitter, warning President Donald Trump that there was a Chinese plot to dominate Bitcoin. It’s especially interesting because Pompliano often touts Bitcoin as being out of the reach of any government. But that’s for another time. 

“Someone tell President @realDonaldTrump that there are only 21 million Bitcoin and China is planning to buy them all,” Pompliano tweeted late on October 25. “This is going to be the real US-China competition.”

If that seems more than a little overblown, keep in mind that within 24 hours of Xi’s speech, the price of Bitcoin had spiked, rising from below $7,500 to more than $10,000. The cause, according to much of the Twitterverse, was Chinese investors pouring into Bitcoin because if the speech.

To be fair, the timing of the rally—it began just after Xi’s speech—makes it easy to see a connection, at least at first glance. 

The problem is, Xi didn’t say anything about Bitcoin. And his regime banned all mainland trading in the leading cryptocurrency in 2017, although a great deal of it still goes on as does a huge part of its mining.

Which raises the question: who misunderstood him? Chinese buyers jumping blindly into a cryptocurrency the regime has been pretty clear it dislikes? Or cryptocurrency pundits and tweeters who saw a pro-Bitcoin attitude in Xi’s statement?

Maybe both.

China itself has been pretty clear about Bitcoin in the days since the speech and it hasn’t at all been positive. On October 28, a prominent think tank leader and former politician had called using Bitcoin to challenge sovereign currencies “delusional.” 

And, the Chinese leadership did seem to buy into the theory that the price spike happened as a result of Xi’s speech. The People’s Daily, a newspaper run by the Chinese Communist Party, chimed in a day after that comment. It warned investors that “[t]he rise of blockchain technology was accompanied by that of cryptocurrencies, but innovation in blockchain technology does not mean we should speculate in virtual currencies,” according to Reuters

Dovey Wan, a founding partner at Primitive Ventures, didn’t see a Chinese buying frenzy causing the rally. She tweeted out an interesting response to that theory, describing what she called, “the ACTUAL reaction on the ground to the Xi Blockchain shill in China.”

Wan pointed out that searches on WeChat for “blockchain” were up nearly 340% on October 25, while “bitcoin” queries were actually down about 5%. On Baidu, where she said more Bitcoin “newbies” tend to search, “blockchain” searches skyrocketed nearly 1,400%. Yet, “bitcoin” was also down about 5%. The next day, both search terms rose 250% to 300% on both platforms.

Her conclusion was that Xi’s “Blockchain shill definitely help[ed] Bitcoin awareness” but the bump didn’t come during the October 25 Bitcoin price spike. It was “more of a[n] aftermath,” she said.

Others suggested it was coincidental timing, pointing to the record volume on the underperforming Bakkt Bitcoin futures market. On October 25, 1,183 monthly Bitcoin futures contracts worth some $10.3 million were added. That’s double what the struggling exchange saw two days earlier and more than five times any previous day’s high, according to the Bakkt Volume Bot’s Twitter account. This added volatility, the theory goes. 

Then there’s the tinfoil-hat brigade. (Of course, given the Bitwise SEC report claiming 95% of Bitcoin trades are fake, it’s worth noting that even paranoid people have enemies.)

Hyper gold bug and perennial Bitcoin basher Peter Schiff jumped in here.

“Bitcoin’s recent sharp rally likely had nothing to do with China, or any fundamental factor,” he tweeted. “It clearly looks like market manipulation by whales looking to sucker in momentum buyers… [so] they are able to dump more #Bitcoin at higher prices.”

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.