Will Bitcoin Be Banned?

Will Bitcoin Be Banned? Bitcoin was introduced in late 2008. Inventor Satoshi Nakamoto intended it as an alternative to traditional currency after the global economic crisis that brought down world markets.

At the time, nearly everyone expected Bitcoin to be a fad. Cryptocurrency was viewed with skepticism outside of the tech community, except for a handful of individuals and businesses who wanted to keep their financial transactions anonymous. 

Fast forward ten years and by 2018 the landscape had changed quite a bit. Bitcoin ATMs were available in multiple nations, and a small number of  mainstream companies accepted Bitcoin as payment for goods and services. 

Nonetheless, some of the biggest names in financial circles remained unconvinced. That year, Warren Buffett gave his often-quoted assessment that, “in terms of cryptocurrencies generally, I can say almost with certainty that they will come to a bad ending.”

However, Buffett’s appraisal notwithstanding, Bitcoin was just about to hit a tipping point. Within months, it was embraced by major organizations, and its use as a mainstream store of value has been growing ever since. 

To date, Cathie Wood, an investor specializing in innovation and disruptive technologies, has made a big bet on Bitcoin. Companies like MicroStrategy (MSTR) and Square (SQ) are trading some of their cash for Bitcoin to hedge against inflation, and leading digital payment service PayPal offers consumers the option of buying, selling, and holding Bitcoin in their accounts. 

The biggest news came in February 2021, when Tesla’s Elon Musk made an important announcement. The company purchased $1.5 billion in Bitcoin, and it would start accepting Bitcoin as payment for Tesla vehicles by the end of the year. 

As Bitcoin and other cryptocurrencies gain momentum, fans and critics alike have questions. Will Bitcoin be regulated? More importantly, will Bitcoin be banned altogether? 

History Warns Bitcoin Could Be Regulated 

One of cryptocurrency’s goals is to move stores of value and payment transactions outside of the central banking system.

If Bitcoin and other digital currencies succeed on a large scale, one of the biggest challenges would be to ensure appropriate taxation. Anonymity makes Bitcoin assets nearly impossible to track, which means problems for governments attempting to assess income and capital gains taxes. 

The second concern international governments have around cryptocurrencies is loss of capital control. At its core, this is the work governments do to manage the flow of foreign capital in and out of the nation’s economy.

When Bitcoin and other cryptocurrencies are traded across borders, governments have no visibility into those transactions. That’s a problem – particularly in countries with particularly tight foreign currency exchange regulations. 

To a lesser extent, governments are concerned that cryptocurrencies impede law enforcement’s detection of crime. Cryptocurrency exchange is virtually anonymous, which means anything can be bought and sold on the black market without raising any alarms. 

These three issues have prompted a number of countries to pass laws regulating cryptocurrencies already. Several more have plans in the works to regulate Bitcoin or ban cryptocurrency altogether. As historians know, there is some precedent for this. 

Will Bitcoin Be Outlawed In the USA?

Billionaire hedge fund founder Ray Dalio discusses the issue of regulating and banning cryptocurrency in his new book The Changing World Order: Why Nations Succeed and Fail (due out August 2021). He points out that in 1934, the United States passed the Gold Reserve Act to prohibit individual ownership of gold. 

According to then-President Roosevelt, the purpose of the law was to “protect the currency system of the United States, to provide for the better use of the monetary gold stock of the United States.” In other words, the US government decided it was not wise to permit competition between gold and money/credit to store wealth. 

It’s certainly possible that current and future administrations will come to the same conclusion with regard to cryptocurrency – particularly if they choose to mirror regulations already in place elsewhere. 

Bitcoin Regulated In India 

India has long opposed Bitcoin, though it hadn’t suggested banning it until very recently. In January 2021, the government stated its intention to prohibit private virtual currencies in favor of developing a state-sponsored digital currency. 

In March 2021, Indian officials took the next step down that path. They stated they would introduce a law that bans ownership and trading of cryptocurrencies altogether. In addition, issuing, mining, and transferring crypto-assets would be regarded as a criminal act. 

The bill is expected to pass into law. When it does, India will be one of strictest countries in the world from a cryptocurrency perspective.

Current holders would have just six months to fully liquidate any cryptocurrency assets. At the end of that period, individuals found to be in possession of cryptocurrency would face legal penalties. 

Is Bitcoin Banned In China?

China is known for its intense regulation of everything from the internet to the press. With that in mind, it is no surprise that it was one of the first to regulate Bitcoin and other cryptocurrencies. While Bitcoin isn’t banned in China altogether, activities related to cryptocurrency are certainly discouraged.

Chinese law doesn’t recognize cryptocurrency as money. Instead, it is considered a virtual commodity. As such, it cannot be used as currency, but Chinese citizens can continue to mine and possess it without reprisal.

It’s worth noting that China is hard at work on its own blockchain technology with the intention of introducing a Chinese digital currency. 

Will Bitcoin Be The Future Currency?

Certain investors are passionate about Bitcoin investment, as it offers a hedge against inflation. Its value is independent of world markets, and it fluctuates based on an entirely separate set of factors. In nations where local currency is going through hyper-inflation, Bitcoin meets a critical need. 

For example, in Venezuela, inflation increased to 350,000 percent in 2019. As of January 2021, Venezuela’s inflation is still at an unreasonably high 2,665 percent. The issue is so severe that the country’s central bank announced the introduction of a bill worth 1 million bolivars in early March.

Keep in mind that a 1 million bolivars bill is worth just $0.52. At the end of 2018, $0.52 was equivalent to just 15,000 bolivars. For Venezuelan citizens, Bitcoin is more stable than local currency, making it very appealing. 

For the moment, it doesn’t appear that Bitcoin will be the future currency for everyday transactions in more stable economies. One obstacle is the fact that current blockchain technology can’t handle the volume of transactions that would occur. 

However, experts in the financial world – including cryptocurrency researchers with financial giant Citigroup – think there is a reasonable chance that Bitcoin will become the preferred currency for international trading.

Some issues still have to be worked out, but the fact that legitimate financial professionals are entertaining the prospect shows how far Bitcoin has come. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.