U.S.-China trade commission issues new report about bitcoin

The U.S.-China Economic and Security Review Commission (USCC) was established by Congress in 2000 to “report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.” In other words, the USCC issues reports on major trading trends between the two nations, as well as offering insight into any future or current security issues. When a fringe economic topic like bitcoin makes it onto the USCC’s radar, Congress listens. With the bitcoin industry increasingly centered in the U.S., China’s “ban” on bitcoin is rapidly becoming an international trade issue.

As the report’s summary explains:

Bitcoin is changing the way the world thinks about money, and its impact is growing, especially in the United States. The driving force behind Bitcoin’s explosive growth in 2013 was the entry of the Chinese market, while Bitcoin’s subsequent slump in 2014 is largely derived from prohibitive measures issued by China’s central bank. If Chinese authorities continue their crackdown on Bitcoin, the global market and, by extension, the U.S. market, may be severely impacted.

The report examines the history of bitcoin in China, covering the late 2013 boom and the various methods the People’s Bank of China has used to squeeze bitcoin out of the mainstream economy. It also examines the reasons for the massive demand for bitcoin in China, a country with practically no bitcoin merchant infrastructure. While the typical argument for the boom has been that younger Chinese see bitcoin as an easy, inexpensive investment rather than a true alternative currency, the USCC paper challenges that notion.

Citing the view of Professor Tyler Cowen, Holbert C. Harris Chair of economics at George Mason University, the report claims that the Chinese “bitcoin gold rush” might not be “a vote of confidence in Bitcoin, but rather a vote of distrust in the renminbi.” By this logic, many Chinese citizens are deeply concerned about their country’s rapidly slowing economy and have increasing doubts about the government’s ability to manage the financial system. As such, the relatively anonymous, easy to secure bitcoin system provides a workaround for the country’s significant currency controls. Wealth can be stored in bitcoin, where it is not subject to the whims of the government or the banking system.

There are many, many interesting insights in the report, including some important indications of the growing role of the U.S. bitcoin industry in the global market. Rather than being seen as a threat to the U.S. banking system, the report hints that U.S. bitcoin businesses are increasingly important players in international trade. As such, U.S. trade policy may eventually tilt towards protection of these domestic interests.