How Market Turmoil and China are Helping Bitcoin and the Blockchain Grow

04/21/2016 12:48 pm ET Updated Jul 27, 2017

Bitcoin and the blockchain are all over the news these days as pundits debate whether or not cryptocurrencies will mean the end of banks within the next decade. What is clear in the short term is that continued global financial market instability and distortions continue to drive interest in bitcoin and other alternative stores of value.

Bitcoin and its underlying blockchain (the distributed database with a public ledger of all records for a cryptocurrency) have garnered a lot of interest as currencies outside the purview of countries. While blockchains can relate to any cryptocurrency, Bitcoin is by far the largest currently in use. On the negative side it has earned poor marks as a way for the trade of illicit goods in darknet commerce. On the positive side it has received strong backing as a potentially more secure currency that offer stability in times of inflation, market swings and other financial challenges.

Two of the more interesting trends ongoing in the world of the blockchain are the use of bitcoin by Chinese citizens to get around currency controls imposed by the PRC and more generally as an alternative to gold with inflation potentially on the rise and global financial markets continuing to be volatile.

China has long imposed currency controls on its citizens, effectively making it difficult to move significant amounts of yuan or RMB into dollars or other currencies. While the Chinese government upped the limit per individual to $50,000 per year a few years back, they have once again clamped down on overseas remittances and debit card usage. An estimated $110 billion flowed out of China in January 2016 alone, most of it through corporate transactions. Smart Chinese individuals and corporates have aggressively begun to use bitcoin as a way to try to skirt controls and to avoid potential further devaluation of the RMB.

On the macroeconomic side of things, investors concerned about financial market instability and incipient inflation in the US have also been coming into bitcoin more aggressively. Since the middle of 2015 these two trends have helped spur a rise in bitcoin from the $200-300 range to $420. It is still a bit of the wild west in the world of bitcoin but expect the continued economic challenges in China and financial market turmoil globally to support more and more interest in bitcoin and its brethren.

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