Seeking Alpha

China bans banks from Bitcoin trading, triggering selloff

  • Bitcoin sells off after the PBOC bars financial institutions from handling Bitcoin transactions
  • Bitcoin isn’t a currency with “real meaning” and doesn’t have the same legal status as a currency, PBOC says. Private individuals remain free to trade Bitcoins.
  • The move is likely tied to Beijing's desire to regulate the yuan: “It represents an unofficial leakage to the current monetary system and trades globally. It is difficult to regulate and could be used for money laundering. I think the central bank is right to make this move,” one analyst says.
  • Bitcoin is down 21.8% to $930 after trading as high as $1,240 overnight.
Comments (37)
  • al roman
    , contributor
    Comments (4602) | Send Message
     
    You do not compete with the Man whom picture is on the bill de jure.
    5 Dec 2013, 06:13 AM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    Just more evidence, as if it were needed, that to have a "currency" one must be sovereign, able to pass laws and have an army. Absent those attributes, anything else traded is a commodity. Bitcoins are today's tulips.
    5 Dec 2013, 06:39 AM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    TAck,
    Couldn't agree more.
    Greenspan is right about bitcoin not being backed by something substantial and hence has no value.
    Dutch tulips are indeed comparable although there's a slight difference: it appeared to the astonishment of 17th cent Dutch speculators that the more the price rose, the more tulips were imported from Turkey or were multiplied.
    The inflection point came when someone got the idea of eating a tulip bulb. The spell was broken and prices fell.
    Theoretically bitcoin can't be reproduced, but of course other similar projects can be started and inflate bitcoin altogether.
    It's an excellent initiative from the part of the Chinese authorities to have forbidden this lunacy from spreading any further.
    I wonder why the US regulators haven't done the same. Only 87 year old Greenspan has the guts to condemn bitcoin.
    5 Dec 2013, 06:57 AM Reply Like
  • Fel-D-1
    , contributor
    Comments (56) | Send Message
     
    I thought the eating of the bulb was a mistake. Sometimes the best innovation!
    5 Dec 2013, 07:25 AM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    A mistake that gave other people the idea that tulip bulbs after all aren't that valuable.
    5 Dec 2013, 08:28 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    Bitcoin is backed by exactly the same thing as the dollar and the dollar, too, is traded globally.

     

    I give credit for China's quiet hoarding of gold to back the yuan, however.
    5 Dec 2013, 06:40 AM Reply Like
  • Patent News
    , contributor
    Comments (1312) | Send Message
     
    your argument is bunk sir.

     

    bitcoin argument re: the dollar is bogus.

     

    china can do what it wants and bitcoin will crash more.

     

    china can ban the biggest exchange site for bitcoin also based in china...
    5 Dec 2013, 06:51 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    "China" should be capitalized.

     

    ...sir.
    5 Dec 2013, 06:53 AM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    Deep,
    USD is backed by assets. Don't talk nonsense.
    5 Dec 2013, 06:58 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    What "assets"?

     

    And where on the Federal Reserve's website or printed publications does it state that the dollar is backed by anything other than the "full faith and credit of the United States"?

     

    If you mean the paper currency can be collateralized then, yes, that is true.

     

    But that is not the same as being "backed".
    5 Dec 2013, 11:11 AM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    DVL:

     

    You mention "full faith and credit of the United States," as if there were something insignificant. It's the most powerful force in today's world, bar none.

     

    Bitcoin is a parlor game.
    5 Dec 2013, 11:47 AM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    Deep,
    US economy to name but one asset, is a strong collateral (backing) for the USD.
    Tell me the semantic difference between collateral and backing.
    5 Dec 2013, 12:00 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    "It's the most powerful force in today's world, bar none."

     

    Please define.
    5 Dec 2013, 12:11 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    The economy is not an "asset". It is the function of the interchange between millions of units of production, transactions and consumption.

     

    Currency can be turned into debt thus collateralized.

     

    Money (not currency) must be backed by a tangible substance (or be a tangible substance itself).
    5 Dec 2013, 12:20 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    DVL:

     

    Why do you think the U.S. dollar is the world's reserve currency and that it times of the slightest fear in the world, people rush to buy dollars and U.S. Treasuries? It's 100% predicated on faith in the security of those deposits, backed by the promise to pay of the U.S. Government, nothing more.

     

    It amazes me when I read commentary, usually from gold fanatics, that assert that the "value" behind a currency is based on actual assets or a stock of shiny metal. Nothing could be further from the truth, and for good reason, too. Assets can be confiscated, by governments, themselves, or by enemies. What people depend on when they hold currency of any nation is that nation's promise to pay and their ability to enforce that promise against all others. Nothing else much matters.
    5 Dec 2013, 12:20 PM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    Tack,
    While I agree with you that "the U.S. dollar is the world's reserve currency and that it times of the slightest fear in the world, people rush to buy dollars and U.S. Treasuries"
    I disagree with you that "What people depend on when they hold currency of any nation is that nation's promise to pay"
    Actually what you say is "when you hold USD's the US has promised to pay you USD's".
    That makes no sense.
    The macro course I had told me that assets are a currency's backing. There is one nice example in history that highlights this. When Weimar Germany started QE-ing its DM, nothing happened in the beginning.
    It was only when Belgium and France occupied the Ruhr and confiscated the main industrial part of Germany (1922), that the DM started to plunge. Why ? It had lost its largest backing, the Ruhr's industry.
    5 Dec 2013, 12:30 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    f:

     

    I was referring to Treasuries when I said that. People, who hold dollars directly, still count on the ability of the U.S. Government to give them value. Nothing else does. And, it wouldn't matter in the slightest if it said on the paper dollar that it could be converted into gold because that's also at the pleasure of the Government.

     

    No, most certainly, assets are not the backing for a currency. If so, then Japan's yen would be near worthless, instead of one of the most powerful currencies in the world. It's the productive power and ability to protect such, as well as the commitment to honor obligations, that provide the value. Holders of currencies have no direct claim to assets. There is no Chapter-Nine procedure for sovereign debts unless one has an army to enforce such claims and is willing to use it.

     

    Weimar is so misused and misunderstood that it's almost become a poster child for silliness. The German mark lost value only because the Allies placed impossibly onerous demands for restitution on Germany, demanding to be paid in gold, and gold alone. The Germans were unable to earn sufficiently to come close to making these payments, so they tried to front-run the exchange rate by overprinting marks and attempting to purchase gold with the paper. The results are well known.

     

    There is no "gold standard" or convertibility, anymore, neither in the U.S. or any other place on Earth, of which I am aware. "Full faith and credit" can be squandered, but until it is, it's the only thing providing value to the U.S. dollar.
    5 Dec 2013, 12:43 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    The chief reason the U.S. dollar is the world's reserve currency is because the technology of the time did not permit Kaiser Wilhelm II and Adolf Hitler later on to adequately attack the United States thus preserving our infrastructure.

     

    That fact coupled with our late entry into both World Wars (especially the first) allowed the United States to maintain a strong industry to trade our industrial goods for gold and currency to a rebuilding Europe.

     

    By the time Europe was back on its feet most international trade was conducted in the most liquid, stable currency available...the dollar. Goodbye pound sterling.

     

    Reserve currency status is a lagging economic feature meaning that the CURRENT state of a world power has little to do with its backing of its currency. Reserve status has NEVER been permanent.

     

    The pound should have fallen by the wayside around the time of the Spanish Flu pandemic but it didn't. Its status stayed as is until the mid-1940s.

     

    I can't understand why, given the current stewardship of the dollar by the Fed, people such as yourself never question the QUALITY of the "full faith and credit". In what universe does the creation of millions more units of something out of thin air INCREASE the value of each previously existing unit?

     

    The following two things are true and indisputable:

     

    1. The U.S. will continue to pay its debts in dollars.

     

    -and-

     

    2. Gold will continue to be an element whose increase in quantity can not be manipulated other than from mining or finding hidden stores.

     

    What backs the quality of the dollar and please explain why that is permanent.
    5 Dec 2013, 12:51 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    DVL:

     

    There is no animate object that backs anybody's currency. QED.

     

    Nobody said anything is permanent. What's your point? The dollar is soon to collapse? I'll bet you and I collapse first. And, as you have iterated catastrophic events as catalysts for change, are you expecting WWIII soon, and will the U.S. be the losers?

     

    Feel free to buy gold, if that make your feel secure. I wonder how secure the recent buyers at $1900 are feeling. Gold is just another commodity in along line of commodities. It can go up, down or sideways.

     

    To conclude, I explained what backs the dollar, and other currencies, as well. It won't last to infinity, but does that make something else a better choice now, or the foreseeable future?
    5 Dec 2013, 01:06 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    I didn't say the dollar is about to collapse.

     

    I didn't say WWIII is around the corner (but then again how many people in 1912 and 1936 were actively preparing for war?)

     

    I buy home insurance although I am not expecting a fire anytime soon. Same for health insurance and cancer.

     

    I'd bet the average purchase price for gold for so-called "gold bugs" is far, far below $1900 (Unless they are young and didn't have enough cash in 2000 and before to buy).

     

    Gold is not "just another commodity" or else our history books would be filled with tales of people worldwide using tin or sand money through the ages.

     

    Gold doesn't go up, down or sideways...it stays the same...the currencies weighed against gold go up, down or sideways.

     

    For the record, I think TODAY and TOMORROW paper dollars are quite valuable. As long as everyone I trade with accepts them then they will have value. If I didn't feel that way I'd toss my cash in the dumpster.

     

    But I look at the unprecedented actions of the Federal Reserve and it is hard for me to wake up each day with more faith in the currency than I had when I woke up the day before.

     

    No one ever went broke because they held physical gold and/or silver instead of [fill in the name of a fiat currency]. If I am wrong, please show me an example.
    5 Dec 2013, 01:16 PM Reply Like
  • bd4uandu
    , contributor
    Comments (1797) | Send Message
     
    Countries need dollars to buy oil.
    5 Dec 2013, 01:24 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    DVL:

     

    It's foolish to hold physical currency because fiat currencies are designed to be inflated; they are "mediums of exchange," not investment vehicles or 'stores of value." One can only compare holding gold to holding other asset forms, and, sadly for the gold folks, the data show that over longer periods equities bury gold and leave it for dead, hard as that is for many to accept.

     

    I don't want to get into a protracted debate about the Fed, but, suffice it to say, there isn't "massive printing," as some claim, as the money supply is mostly sitting back at the Fed in the form of excess reserves. That's why we don't see any inflationary effect and won't unless the banks go crazy forming new credit, and the Fed stands by, idly, and allows inflation to occur.
    5 Dec 2013, 01:29 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    Then why do central banks, including the Fed, hold gold?

     

    And why gold and not, say, copper?

     

    I agree that currencies are not meant to be stores of value but why is it that gold, silver or another precious commodity can't serve that role (if that is what you are saying)?

     

    By the way, I'd put the percentage of gold enthusiasts that claim gold gains more in value vs. the S&P 500 (for example) over time at <2%. I certainly would never make that argument because I have many more shares than pieces of gold and silver.

     

    I'd agree with you about whether or not there is massive printing going on except for one question that no one seems to have a good answer to:

     

    How does the bank release the reserves without stoking inflation?

     

    Or are these reserves to be permanently held?

     

    There is no free lunch.
    5 Dec 2013, 01:43 PM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    Tack,
    Your words:
    "Weimar is so misused and misunderstood that it's almost become a poster child for silliness.... The Germans were unable to earn sufficiently to come close to making these payments, so they tried to front-run the exchange rate by overprinting marks and attempting to purchase gold with the paper."
    My answer:
    Some people have absolutely no idea of what really went on in the years 1920-1923 in Germany and have a tendency of presenting things in an almost childish cliché way..
    Yes, Germany was "overwhelmed" by the Versailles Treaty, being forced to pay by territorial as well as colonial and economic concessions.
    Yes, these were the result of British and foremost French claims.
    Yes, US President W. Wilson opposed to these claims, but wans't able to dismiss them.
    Yes, Germany had to pay 20 billion gold marks to the victors.
    NO, Germany did not comply to these financial claims but for a very small percentage.
    NO, the Hyperinflation did not start at the beginning of the ceding of German territory in 1919.
    YES, German hyperinflation started when Belgium and France started to occupy Germany in March 1921 because large parts of its industry (coal, steel) was being hijacked.
    YES, Belgium and France did so because they did not get the payments that had been promised by Germany in the Treaty.

     

    Under "Treaty of Versailles - Historical Assessments" Wikipedia correctly writes:
    "More recently economists have argued that the restriction of Germany to a small army saved it so much money it could afford the reparations payments."
    Reference:
    Hantke, Max; Spoerer, Mark (2010). "The imposed gift of Versailles: the fiscal effects of restricting the size of Germany's armed forces, 1924–9". Economic History Review 63 (4): 849–864. doi:10.1111/j.1468-028...

     

    "If ever there was any influence of the Versailles Treaty regulations on the Weimar hyperinflation, these never accounted for more than a third."
    Op.cit. Wikipedia under "Violations".
    And even that figure I question in the light of the above facts

     

    Conclusion: to correctly understand History one has to stay up-to-date and read more than what is presented in the popular tabloids.

     

    Your words:
    "No, most certainly, assets are not the backing for a currency. If so, then Japan's yen would be near worthless,"
    My answer:
    So in your view Japan has no assets, no economy ? Weird view, to say the least.
    5 Dec 2013, 02:13 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    f:

     

    No, Japan does not have "assets," as in hard assets, resources, etc. It has productive might. I said as much, as one of the foundations of what's behind "full faith and credit" for the U.S., not trunks full of gold or any idea that someone would have a claim on the country's vast resources, should it decide not to pay. It's only the promise that has value, completely intangible.

     

    If we differ, then it shall have to remain so.
    5 Dec 2013, 03:23 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8139) | Send Message
     
    http://bit.ly/18lQ4G2
    5 Dec 2013, 03:57 PM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    Tack,
    I gather you agree with me and Wikipedia on the causes of Weimar's hyperinflation.

     

    As to Japan's assets, let's first define the word asset.
    Here's what Wikipedia has to say about it:
    http://bit.ly/1bKGzDh
    "In financial accounting, an asset is an economic resource. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset).["

     

    They see 2 different kinds of assets:
    "Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets.[3] Current assets include inventory, while fixed assets include such items as buildings and equipment.[4]"

     

    They specify:
    "Tangible assets are those that have a physical substance, such as currencies, buildings, real estate, vehicles, inventories, equipment, and precious metals"
    and
    "Intangible assets lack of physical substance and usually are very hard to evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. These assets are (according to US GAAP) amortized to expense over 5 to 40 years with the exception of goodwill."

     

    What you define as "assets", natural resources, does not coincide with what is globally accepted as being the definition of "asset", quod erat demonstrandum.

     

    So, to avoid further misunderstandings, please change your definition of the word "asset".

     

    As you must have noticed, whether you like it or not, US GAAP inventory standards consider "precious metals" as tangible assets. And as you must concede, Japan has also lots of other assets that have been described (both tangible and intangible) here above. They form the basis of the strength of the Yen.

     

    If you differ from US GAAP inventory standards, and want to remain so, that is your responsability, but don't spread your personal view on this forum. It's worthless.
    5 Dec 2013, 04:10 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    f:

     

    You think the U.S. currency is backed by GAAP inventory? No person or country has any exercisable claim on any U.S. assets, even if the country just told them to go pound sand. The value of the currency lies in the belief in the promise to pay, hence "full faith and credit." It doesn't matter how gold is classified. Utterly meaningless.

     

    I was originally responding to DVL, who said:

     

    "Money (not currency) must be backed by a tangible substance (or be a tangible substance itself)."

     

    I maintain that it's not necessary to be backed by anything "tangible" to have value. That's why countries, like Japan, Singapore and Switzerland can all have valuable currencies, even though their tangible assets are minimal, in comparison.

     

    "Full faith and credit" is just what it says and has nothing to do with "assets," as in "tangible substance."

     

    P.S. I understand what an "asset" is. I, also, understand what "tangible" means.
    5 Dec 2013, 04:18 PM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    Tack,
    I gather you confess you had an apocryph understanding of the word "asset".

     

    But let's proceed.
    First let's look at how currencies behave in reality due to changing circumstances.
    Your words:
    "The value of the currency lies in the belief in the promise to pay, hence "full faith and credit."
    My answer:
    That only counts for Treasuries, Bills and Notes, in short Public Debt.
    Us Treasury indeed promises to pay for its debt.
    But that does not say anything about the strength or value of the US currency.
    Think it over: every day the value of the dollar changes vs the euro, the Yen, Yuan....
    Why is that ? Do "full faith and credit" change every day ? Are they constantly evaluated differently depending on the mood of some faith- and credit- valuator ?
    No, the underlying assets change constantly and hence the value of the USD.
    In the seventies the USD went down because there was an asset drain due to the 'Nam war.
    That's the reality.

     

    Now, let's switch to theory:
    "The Congress has specified that Federal Reserve Banks must hold collateral equal in value to the Federal Reserve notes that the Federal Reserve Bank puts in to circulation. This collateral is chiefly held in the form of U.S. Treasury, federal agency, and government-sponsored enterprise securities."
    From:
    http://1.usa.gov/1bk3Oy5

     

    So, after all, quite a different collateral, even in theory, than your "Full Faith and Credit".

     

    So far for the USD as master of the Universe.
    And I can tell you that the value of all other currencies is highly liable to switches in their underlying economic assets (Agriculture, Trade, Industry, Tourism, Services...)
    5 Dec 2013, 04:59 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    f:

     

    How is a Treasury, as "collateral," any different than "full faith and credit." Can you eat a Treasury bond? Can you attach it?

     

    It doesn't matter how the currency's value changes, day to day, regarding the issue of "full faith and credit." That's not the issue. The issue is whether people use the currency and invest in the securities backing it. That's wholly based on "faith," not some detailing of assets or their slight changes in valuation, as imagined by the market each day.

     

    And, I told you, I had no misunderstanding of what an asset was/is, in the first place. I was responding to DVL's assertion about "tangible." Apparently, you now wish to claim that I said the U.S. or Japan has no assets, as in other intangible assets. I didn't mean to say this, if that's what you inferred. If you do believe that tangible assets is what it's all about, then let's just agree to disagree and leave it at that.

     

    There'little worth in exploring this semantic jungle further.
    5 Dec 2013, 05:29 PM Reply Like
  • filipo
    , contributor
    Comments (2728) | Send Message
     
    Yes, better not debating any further on these words you directed to me:

     

    "f:

     

    No, Japan does not have "assets," as in hard assets, resources, etc."

     

    They are too silly to be mentioned.
    6 Dec 2013, 03:35 AM Reply Like
  • TruffelPig
    , contributor
    Comments (4055) | Send Message
     
    Now go back to those articles recently on Bitcoin and write some comments to the authors. Greetings from Tulip land, Bitcoin will be devalued to junk level. Some got rich, many lost money. Why does that remind me of a Ponzi.....
    5 Dec 2013, 07:03 AM Reply Like
  • al roman
    , contributor
    Comments (4602) | Send Message
     
    "Burning Spear" it's alright, the dollar isn't going anywhere, it's a utility.
    5 Dec 2013, 07:13 AM Reply Like
  • aedius
    , contributor
    Comments (310) | Send Message
     
    Bitcoin exchange rate has already bounced back to $1095. All these negative comments sound like people who are upset about missing the boat.

     

    Please continue your tulip comparisons, just how the Internet was misunderstood and written off in it's early days, so has Bitcoin to many people who fail to take the time to understand it. Don't believe me though, take a look at the recent analyst notes from Wedbush and BAML.
    5 Dec 2013, 10:16 AM Reply Like
  • wefish
    , contributor
    Comments (16) | Send Message
     
    This was bound to happen, bitcoin is a illusion, a cyber pariah, and of course just a internet invention, with no monetary backing it is a fool's game.
    5 Dec 2013, 10:37 AM Reply Like
  • B.stolk
    , contributor
    Comments (8) | Send Message
     
    aaaaaannd..... it is right back up where it was a couple of days ago.

     

    These mini crashes occur every week or month.
    And it typically takes 24h to recover from it.

     

    It does not scare me.
    5 Dec 2013, 04:51 PM Reply Like
  • shamanot
    , contributor
    Comment (1) | Send Message
     
    Not backed by anything... ROFL! And Ebay is a warehouse somewhere that holds all the merchandise it sells.... The people that use that as an argument are just going to buy late and lose.... Bitcoin's value comes from it's concept and that is what it's "backed" by. The Federal Note hasn't been backed for years. One day there will be a better way to measure value than Bitcoin. Until then all other crypto-currencies will be the Betamax, Lazerdisc, etc. to the VHS.... Some people would take a brick of gold because it's a rare metal, some would rather take paper of the same weight with $1000 printed on each paper, others would rather take 100 weightless bitcoin. Governments love bitcoin. It's a lot easier to regulate than cash. The banks are solely profit driven and they have enslaved every government. This is why China doesn't want the banks involved. China will still use Bitcoin online for sure. Btw, the Chinese people just bought a ton yesterday and today.
    7 Dec 2013, 12:17 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|