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Opinion

Elon Musk is the least of Bitcoin's troubles

Beijing calls time on the crypto world's easy days

| China
You may have a tail-wagging-the-dog crisis on your hands.   © Imaginechina/AP

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."

If Bitcoin enthusiasts think Elon Musk is ruining their party, wait until they get a load of what China's Yi Gang has in store.

Yi runs the central bank of the world's second-biggest economy. Until recently, China was the epicenter of cryptocurrency mining -- and broader optimism that this nascent "asset class" would decentralize financial power everywhere.

A series of government curbs in recent years -- including bans on initial coin offerings -- drove most crypto-mining elsewhere. Yet the real threat is coming from something Bitcoin bulls initially saw as a buy sign: China issuing a digital currency.

May has been a devastating month for crypto-mania, particularly Musk's flip-flop on Tesla accepting Bitcoin. The tech world's most enigmatic innovator making a $1.5 billion Bitcoin bet drove values into the stratosphere like a SpaceX rocket. News Musk was suddenly down on crypto -- after getting an earful from environmentalists -- landed hard on the market.

Tesla became the first major company to get up really close to Bitcoin -- and to recoil in horror upon learning what is in the blockchain sausage. How does one buy or sell an $80,000 product when the value of what you are paying with could gyrate up or down 20% an hour later?

Enter Gov. Yi's People's Bank of China, which is building a digital yuan as we speak. The contours of PBoC-coin first came into view in mid-2020. Since then, crypto bulls have tried to spin this as a win. Here is the globe's soon-to-be biggest economy signaling that paper money is going the way of salt, seashells, camels, knives, gold coins and other monetary units of generations past.

Cryptocurrency use would flourish by osmosis, the wishful thinking went, as investors started betting on digital bond deals and stock listings, and e-money transfers moved from science fiction to science fact. Not so fast, says Chinese President Xi Jinping, who is giving Yi carte blanche to digitalize in a hurry.

Could this be the endgame as China and other governments institutionalize a payments system that leaves Bitcoin, Ethereum, Dogecoin and others outside the transactional world with little to do?

The whole game, really, is to hoard the thing everyone will need five years from now to buy coffee, shop on Amazon and Rakuten, or purchase a home. It is a bit like buying internet domains -- TokyoOlympics2022.com, perhaps -- that folks might pay a king's ransom for someday.

China is calling time, though. Last week, Beijing banned financial institutions and payment services from even touching cryptocurrencies. If Musk is a pest buzzing around the market, China just pulled out a giant flyswatter to make Bitcoin's May an even crueller month.

Janet Yellen, too, it seems. Last week, the U.S. Treasury secretary announced plans to tax cryptocurrencies. The context of Yellen's broadside is raising revenue to fund a $1.6 trillion social spending plan. But it hints at where President Joe Biden might be headed: greater curbs and regulation of this Wild West universe.

Yet even Yellen's attempt at treating the market as an adult is farcical. Transactions "with a fair market value" over $10,000 will soon be reported to tax authorities. What is "fair" value? It is entirely possible, given the epic price volatility, that a crypto user buying an Apple iPhone could flag Internal Revenue Service attention if the cost suddenly spikes.

It says everything about the absurdity of our times that the sharpest insights come from comedians. Exhibit A: the recent crypto-is-an-environment-killing-Ponzi-scheme rant by HBO's Bill Maher. As Maher put it: "What you hope is that somebody else comes along and pays you more money for them later on. But then that person's got the problem. In terms of value: zero."

The question now is whether Yi's team at PBOC accords private cryptocurrencies any role in the conventional payments system at all. If governments band together to trace, tax and regulate Bitcoin and supplant its transactional utility, what is the point?

PBOC Gov. Yi Gang, pictured in September 2019: the question is whether Yi's team accords private cryptocurrencies any role in the conventional payments system at all.   © Reuters

Oddly, Musk, by toying with Bitcoin, highlighted its biggest flaw. When a random, vague tweet from one erratic CEO can create or destroy hundreds of billions of dollars of perceived wealth, you may have a tail-wagging-the-dog crisis on your hands. You also may be looking at a move by the Group of Seven nations or the Group of 20 to end the crypto party.

India's Narendra Modi is no one's idea of an economic innovator. But authorities could try a version of the prime minister's 2016 demonetization move. That gamble, whereby India suddenly pulled all large-currency bills out of circulation, was aimed at tackling the black money that enables money laundering, tax evasion and terror financing.

The harder it is to monetize something your computer processor "mined," the more a cryptocurrency becomes the financial equivalent of an internet troll. It is a sign of our disorienting times when celebrities, entrepreneurs and sneaker enthusiasts can just up and create a non-fungible token, or NFT. Or the corporate version: doing a special purpose acquisition company, or SPAC. Why do the hard work of earning an initial public offering when you can bamboozle investors with a SPAC deal?

As Beijing does the hard work of creating a PBoC-coin, the easy days for the crypto world may already be over.

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