Thiel's China bitcoin threat narrative (not again...), and how Chengdu government lost millions in crypto ( hold your key!)
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Xi sneezed twice
Xi Jinping probably sneezed twice when Peter Thiel made the comment that China could use Bitcoin, in addition to the Euro, as a “financial weapon” to dethrone the dollar as the global reserve currency.
In China, folklore says that if someone is missing you, you sneeze once; if someone criticizes you behind your back, you sneeze twice.
During the forum, titled "Big Tech and China: What Do We Need from Silicon Valley?,” Thiel, the famous PayPal co-founder and Trump backer, argued that China’s digital Yuan is not the real concern to the current global order. On the contrary, Thiel reasons, China’s potential use of Bitcoin might position the country to win the global financial power race, which would also give it more say in global political dominance.
So, how much truth is there to Thiel’s prediction?
Long-gone are the days when China dominated BTC
The association between China and Bitcoin has deep roots in China’s decade-long dominance of bitcoin mining. Since the Bitcoin network is a decentralized protocol, any dominant player in Bitcoin mining is a threat to Bitcoin’s overall security, which is why Thiel himself invested in Bitcoin mining company Layer 1 Technologies in West Texas—to spur the shift in Bitcoin mining power from East to West, a shift that now looks unstoppable.
More importantly, Bitcoin’s early era was mostly defined by retail investors and cyberpunks all over the world. The recent bull run was institutional-driven, mostly by investment firms in the West, and washed out many Chinese retail investors. Now Western hedge fund titans and family offices have become the new #HODL gang.
Chinese retail investors are left with empty bags and, perhaps even worse, fewer ways to onramp from fiat into crypto as China cracked down on crypto exchanges and OTC trading.
All of this, of course, casts real doubt on Thiel’s claim that China has any significant say in Bticoin’s future.
Can China dominate again?
There are still various scenarios that could see China dominate the Bitcoin market again.
One scenario would be if the Chinese government pours its resources into sanctioned mining facilities and holding Bitcoin as part of its national treasury.
It might look highly unlikely, given that the government has tried to shut down coal-powered mining plants in Inner Mogolia, and given that Beijing is reportedly concerned that crypto mining could prevent it from achieving carbon emission reduction targets.
Another scenario that could help China return to Bitcoin market dominance is if the country buys up Bitcoins at great scale. That could cause Bitcoin’s price to pop or drop in the short term, but either way, it would be bad for Bitcoin’s macro reputation.
What Thiel was really saying
Bitcoin’s entire value proposition rests on being decentralized, permissionless, and censorship-resistant. Any single entity seen as controlling the Bitcoin market would only do harm to its narrative. As a self-described “pro-crypto, pro-Bitcoin maximalist,” Thiel already knows this very well.
So, why even make such a claim?
Perhaps we need to look at the true audience of Thiel’s comments.
As the U.S. lags behind China on various technology fronts—in particular mobile fintech innovation—Silicon Valley OGs like Thiel are using China’s crypto ambitions as a savvy prop to stoke some FOMO (fear of missing out) in Washington, D.C. The implication is: If America doesn’t embrace Bitcoin regulation, it will lose ground to China.
And no matter whether China embraces Bitcoin or Dogecoin or its own state-backed digital currency DCEP (“China coin”), any would be enough to potentially push the U.S. to compete.
If Thiel really wants to spur the U.S. to hurry up in this global crypto race, he ought to go one step further and obtain funding from President Biden’s $2 trillion-dollar infrastructure plan to build more bitcoin mining facilities in America. (And Thiel, co-founder of government defense-friendly Palantir, has no lack of experience dealing with lawmakers.)
Just one day after Thiel’s comments, China’s central bank put out a mandate to “steadily develop and advance DCEP.” Clearly, DCEP is the “coin” China is chasing now.
Bitcoin, perhaps, can wait a bit.
Hold your own key, even if you are the government
China’s crypto scene never lacks scandal.
On April 8, Gao Ziyang, CMO of the Chengdu-based blockchain audit firm Beosin, was taken into custody and charged with embezzlement of state-owned assets.
So, how did a security audit firm manage to steal government digital assets?
The irony is that Beosin had been entrusted by some municipal governments to investigate fraudulent crypto schemes—for example, local exchanges that scam innocent retail investors. After such investigations, the government asks Beosin to either store or sell the seized crypto assets before eventually returning them to the state.
But instead of selling the assets, Gao was allegedly putting the coins into a short position, a ploy that completely failed, since crypto markets have rallied fivefold since August 2020.
Now the government wants its money back and Gao has nothing but empty bags.
It’s a reminder that crypto is like a casino. Hold your own keys, even if you are the government.
Do you know?
搬砖, which means “move bricks” in Chinese, is a way to describe market-making. For example, given the recent Kimchi Premium that pushed Bitcoin 20% higher on South Korean exchanges than elsewhere, a market maker would be moving bricks from one exchange to another.