On the Bitcoin Ban Controversy

This article was also submitted for Bitren’s March featured-post selection and won second prize, so the copyright belongs to Bitren and it may not be reprinted in commercial form. My own blog is non-profit, so I’m still posting it here. Commercial websites wishing to reprint it should contact Bitren; non-commercial websites should please indicate Bitren as the source: http://bbs.btcman.com/forum.php?mod=viewthread&tid=17364

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I previously submitted a piece for consideration that talked about the MtGox issue, thinking it was a timely contribution. I never imagined that before that matter had even finished playing out, it would already have been covered over by a new major event. Recently the rumor that China was banning Bitcoin has sent people into a panic and the market has plunged, so I might as well submit another timely piece.

1. Freedom is cruel

The core spirit of Bitcoin is freedom. Especially now, in Bitcoin’s infancy, it is like the Wild West, or like the Age of Exploration: a vast unknown world is waiting for us to open it up. The Bitcoin world has broken away from the old order, but a new order has not yet been established. This stage offers the greatest opportunities, but it is also the time of greatest risk. On the one hand, galloping across the Great West on horseback, or setting sail on the great sea routes, is a wonderfully free and easy thing to do: to range freely, to open up a new world, to build an immortal enterprise—“heroism comes out of disorder,” as the saying goes. But this romance is by no means a cheap pleasure. If you throw yourself into a chaotic age, you must inevitably bear the corresponding risks. Not only may the old powers come at any moment to suppress you, but the new contenders for supremacy may also, at any time, openly or covertly, take ruthless action against you. Business is like war: on the battlefield, feints and tricks, duplicity and deception are common occurrences. Of course we should condemn and despise those dirty methods, but facing up to risk is another matter. Some newcomers see rumors and are immediately all worked up, let alone how to deal with all kinds of fraud and conspiracy. Admittedly, in chaotic times, underdogs have a greater chance of mounting a comeback; “those who once wove mats and sold shoes” may indeed found a school or even establish a state, but this is by no means something you can obtain while lying down. Opportunity corresponds to risk: without sufficient foresight and courage, without passing through all kinds of tests and hardships, how could success come so easily? Many people think that early Bitcoin players somehow got rich for nothing, becoming millionaires at almost zero cost. But the environment they faced was harsher than ours today: years of plunging prices and despair, scams and thefts appearing constantly, and most early players have already had their wings broken. We who have only now joined are still not too late. That means, on the one hand, we still have enormous opportunities, but on the other hand the challenges and uncertainties we will face are equally enormous. This is something all Bitcoin players should have some awareness of—whether you hold a long-term conviction or only want to make a quick play and leave. This incident, whether it is a scheme of intrigue played by rumor-mongers or a counterattack by old forces, is nothing strange; these things can happen at any time, and one should already have been prepared the moment one stepped onto the battlefield.

Freedom means being responsible for yourself, not leaning on others at every turn or shifting responsibility onto others. If you do not have the consciousness of freedom, then distancing yourself from Bitcoin sooner is the way to protect yourself.

2. Does it matter whether a rumor is true or false?

Of course, whether something is true or false is an important question, but the key is: in what sense, and for whom, is it important? For platform owners and news reporters, whether this news is true or false should be the first thing they care about. But for ordinary investors, the urgent task may not be to pursue the truth or falsity, much less to find the people who released and spread the information and start cursing them out.

First of all, the so-called rumor (for more on rumors, see my old article: “Praise for “Rumors”“) has as its most important feature the fact that it may be true. A rumor is not the opposite of truth; it is the opposite of official information. The spread of rumors first occurs in an environment where official information is lacking, or official authority is lacking. In fact, a rumor is “folk information”; it is “the group speaking.” The spread of rumors itself reflects the intention of the group. For example, a rumor that salt will be rationed probably cannot spread today, but during the Fukushima nuclear leak incident in Japan, such a rumor could spread. It is not that the rumor brought about panic; rather, panic brought about the rumor. The reason the rumor that China was banning Bitcoin could spread was also because the seeds of panic had long ago been planted in Chinese investors’ minds. Many people felt that this day would sooner or later arrive, and were deeply uneasy about the Bitcoin environment; only under such conditions could this rumor spread and produce a significant effect. Whether true or false, a rumor is reflecting public sentiment.

Therefore, whether true or false, rumors will stimulate the release and venting of public opinion. So if what you care about is the market, then whether the rumor is true or false does not matter all that much. In fact, if the rumor is true, the drop may not even be as severe as if it were false. If it is confirmed to be true, of course there will be a wave of decline, instantly releasing the panic. But after the panic has been released and everyone who wanted to sell has sold, you get the so-called situation where “the bad news is fully priced in,” and the market will return to fundamentals; at that point, the bulls have arrived at the time for action. By contrast, if every few days there is another piece of bad news, and prices keep falling in fits and starts, then even the bulls will not dare to move, and even those who believe in Bitcoin’s future may continue to sit on the sidelines. The eventual effect may be that the market becomes even more depressed.

So people who truly care about the market should not bother themselves with condemning those who spread rumors. Whether true or false, the spread of rumors has already indicated the group’s intention and already revealed the existence of “the trend”; you can then act in accordance with it. If you failed to grasp the timing and instead were driven by the general current and ended up losing money, then that is simply because your own ability was not good enough. Who can you blame?

3. What if China really does ban Bitcoin?

Of course, strictly speaking, Bitcoin cannot be banned at all. If you think that once China bans it, Bitcoin will go to zero, then you should never have invested in Bitcoin in the first place. But I do in fact believe that the Chinese government will sooner or later introduce some regulatory policies. The only question is how bad those regulatory policies will be. In truth, we are not afraid of “strict” regulatory policies at all. No matter how strict the policy is, so long as the legal boundaries are made clear—so that everyone understands what is illegal and what is legal—then all activities can be launched without hesitation. But the worst case in China is not legal strictness; it is legal vagueness. For example, we claim to have freedom of association and freedom of assembly, but in practice these things basically cannot be carried out. It is also very possible that the authorities will say in words that Bitcoin can be freely bought and sold online, only for you to discover, under layers upon layers of overt and covert restrictions, that there is in fact no freedom at all.

Still, Bitcoin, like Facebook, Google, twitter, and so on, does not fear the controls of centralized states. It is itself precisely a liberating force that breaks through controls. In any case, using Bitcoin in China will never be harder than breaking through the Great Firewall.

Moreover, China’s withdrawal would at most only weaken the speculative component of Bitcoin, returning it to its fundamentals earlier and allowing it to focus more quickly on ecosystem development. That may not be a bad thing. Even in terms of the market, apart from the inevitable sharp drop, it is also possible that it could recover quickly. China’s real tycoons can buy property in London or land in Detroit at any time; how could buying and selling Bitcoin abroad be such a difficult matter? At most, only some small retail investors and grandmothers who do not understand English would be affected, and even they can still find investment channels through various means. The amount of capital that would truly have to withdraw because of a ban would not actually be very large. The main issue is still confidence: once the bad news has fully played out and confidence gradually settles down, the market will not remain depressed for too long. (Of course, since the bad news on the MtGox side has not yet been fully digested, it is hard to say how things will develop.)

But the biggest variable is still Bitcoin trading platforms. If they transition smoothly, move overseas, and bypass domestic banking controls through some workaround, and if that method is also approved, then there may not be any major change. But if a few platforms simply stop doing business, while having previously misappropriated users’ coins and not holding 100% reserves, then in the ensuing run on the market a chain reaction may be triggered. Such a reaction has already been played out recently at MtGox, and I have also said that if domestic investors do not take this seriously, something like this will sooner or later happen in China as well. Perhaps this round of turbulence is precisely the fuse. Whether the ban is true or false, in certain circumstances it may trigger a run.

The way I suggest responding is to withdraw both Bitcoin and renminbi from domestic platforms as early as possible. If you intend to hold Bitcoin for the long term, then keep it properly in your own wallet. If you still want to do some short-term speculation, then you may as well move to overseas platforms. Overseas platforms also fluctuate with the mood of Chinese users, and right now they still have some premium relative to domestic markets; if you sell there and take back US dollars, you won’t lose out. It’s just that trading requires fees, but ask yourself honestly: do you really need to trade so frequently? A fee of a few tenths of a percent versus the risk that your funds could be completely wiped out—which matters more?

4. What if the rumor is false?

If the rumor is false, if there is in fact no ban, or if it is merely something beneficial like stricter management, then is everything fine and dandy? Don’t rejoice too soon. In my article “Praise for “Rumors”” I cited a case study about the addition of earthworms to McDonald’s hamburgers. The experimenters found that, afterward, the group with “rumor + refutation” actually had a worse impression of McDonald’s than the group that only received the rumor without any refutation, while the third group—who not only received a refutation but also had the pleasant experience of being told, additionally, about eating earthworm dishes in French restaurants—scored even higher. In other words, even if a rumor is refuted, its impact on market sentiment may not dissipate. The panic, worry, insecurity, and fatigue over market volatility and the frequent emergence of rumors that the rumor has awakened about Bitcoin’s future; the despair brought on by constantly chasing price rises and selling into drops, thereby deepening losses… these negative emotions that have been stirred up will not simply disappear because the rumor is refuted. Unless more and more people eventually realize that being dragged around by the nose by every piece of news is fundamentally wrong, and realize that Bitcoin’s future has nothing whatever to do with the attitude of the Chinese government, only then can the market finally emerge from the shadow of rumor. Otherwise, Chinese investors will always remain psychologically fragile; after a rumor is refuted, they will chase prices up again, and sooner or later they will be slaughtered by the big players once more. That is why I said earlier that true news may not necessarily fall more sharply than false news.

So in any case, the best mindset is to treat a rumor as a drill, because such things may really happen at any time. In many situations, a drill may be even more intense than actual combat. When it is truly time to fight, perhaps just a few missiles will be enough to quiet things down; but during a drill, the momentum may instead have to be vast and a full mobilization carried out.

Translated from the Chinese original with AI assistance. The original text is authoritative.