The US-China Trade Battle and Its Impact on the Crypto Market
The ongoing trade battle between the United States and China has far-reaching implications that extend beyond traditional economic sectors. As the competition for global dominance continues to intensify, it has become increasingly evident that the cryptocurrency market is also becoming a prominent battleground for these two global superpowers. While the focus on Chinese spy balloons in America and naval provocations in the Taiwan Strait has captured headlines, it is crucial to recognize the significance of cryptocurrency and blockchain technology in this power struggle.
The Technological Innovation Battle
In a speech last year, Chinese President Xi Jinping emphasized the role of technological innovation as the main battleground in the global arena. He acknowledged that the competition for technological dominance would be unprecedentedly fierce. This statement reflects China’s determination to establish itself as a pioneer in various emerging technologies, including cryptocurrency and blockchain.
While US politicians may not be fully aware of the implications, China has already made significant progress in the cryptocurrency space. Chinese cryptocurrency exchanges dominate the global trade volume, showcasing China’s strong foothold in the industry. Additionally, the Chinese government has struck bilateral deals and deployed its central bank digital currency, known as the e-yuan, in countries beyond its borders, such as Ecuador and Peru. Furthermore, the Digital Currency Research Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates joined the Multiple CBDC Bridge project, aimed at establishing a system for real-time cross-border foreign exchange payments.
However, it is crucial to highlight that China’s involvement in the cryptocurrency market is not limited to legitimate activities. Criminal networks originating from China and neighboring countries have been responsible for stealing and laundering billions of dollars’ worth of digital assets globally, including in the United States. They have also collaborated with North Korean hackers to launder stolen cryptocurrencies. Additionally, an unknown Chinese transnational criminal network has orchestrated a multi-billion dollar crypto scam known as “Pig Butchering,” which has targeted unsuspecting Americans. These criminal activities underscore the need for more robust and secure markets within the United States.
The Rise of China’s Influence
The rise of China’s influence in the global cryptocurrency market is evident when assessing the distribution of trading volume across the largest exchanges. Out of the 15 largest cryptocurrency exchanges by volume, only three are American companies. The rest are either Chinese or have significant ties to China or Hong Kong. This amounts to over $10 billion in daily trading volume falling outside of U.S. jurisdiction.
Interestingly, as the regulatory landscape in the United States becomes more uncertain, American market makers and exchanges are increasingly relocating overseas. Key players such as Jane Street and Jump Crypto have scaled back their operations in the US, while others are actively seeking new headquarters in jurisdictions such as Dubai, Singapore, and Hong Kong that offer clear regulatory frameworks. Even major US-based exchanges like Coinbase are considering establishing international hubs, reflecting a shift towards more crypto-friendly environments.
This exodus of crypto businesses from the United States not only diminishes its influence but also limits its ability to effectively regulate and control the industry. The United States risks losing its position as a global leader in technological innovation and financial markets, compromising its national security.
The Impact on Financial Freedom and US Interests
If China becomes the leader in cryptocurrencies, it will have significant implications for financial freedom and US interests. Adopting China’s system would result in less financial freedom, limited creative influence in the industry, increased opportunities for hidden financial crimes, and reduced US ability to impose sanctions and financial penalties. Furthermore, it would foster a greater dependence on Chinese financial companies and diminish the influence of the US dollar.
The United States needs a thoughtful and strategic response to maintain its position in the cryptocurrency race. Leveraging what is quintessentially American – an open society, bold thinkers, and responsible technological innovation – is crucial. Encouraging innovation in decentralized finance is an essential step for US interests to succeed in this “horse race” against China. Failure to do so would jeopardize national security and hinder the potential benefits that decentralized finance can bring to global markets.
Summary
The US-China trade battle extends beyond traditional economic sectors, with the cryptocurrency market becoming a prominent battleground. China has established itself as a pioneer in cryptocurrency and blockchain technology, dominating global trade volume and deploying the e-yuan beyond its borders. However, China’s involvement is not without its negative consequences, as criminal networks originating from China are responsible for significant theft and money laundering of digital assets worldwide.
China’s influence in the cryptocurrency market is evident through the distribution of trading volume, with the majority of large exchanges having ties to China. Concurrently, American market makers and exchanges are relocating overseas due to regulatory uncertainties. This exodus diminishes the US’s influence and compromises its ability to regulate the industry effectively.
The rise of China in the cryptocurrency market poses risks to financial freedom, creative influence, and US interests. To maintain its position, the US must encourage innovation in decentralized finance, leveraging its open society and responsible technological innovation. Failure to do so not only compromises national security but also diminishes the potential benefits that decentralized finance can bring to global markets.
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As a major global power struggle between the US and China continues to escalate, many may not realize that crypto is a battlefront.
Chinese spy balloons in America and naval provocations in the Taiwan Strait made exciting and dramatic headlines, but it was only last year that the Chinese president Xi Jinping He himself argued that “technological innovation has become the main battleground on the global playing field and the competition for technological dominance will become unprecedentedly fierce.”
Whether US politicians like it or not, cryptocurrency and blockchain technology are a major battleground in America’s competition with China – and the US is dramatic fall behind.
pioneer in China
Cryptocurrency exchanges linked to China account for the majority of global trade. The Chinese Communist Party has already struck bilateral deals and deployed its central bank digital currency, the e-yuan, beyond its own borders, such as in Ecuador, Peru and other key port locations across South America. And last year, the Digital Currency Research Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates joined the Multiple CBDC, or m-CBDC, Bridge, a project to build a system for real-time cross-border foreign exchange payments.
In parallel, criminal networks operating out of China and its neighbors have stolen and laundered billions of dollars worth of digital assets around the world, including in the United States Chinese intermediariesfor example this helped North Korean hackers launder hundreds of millions of stolen cryptocurrencies. And it is an unknown Chinese transnational criminal network that is behind the multi-billion dollar crypto scam dubbed “Pig Butchering” that has plagued everyday Americans looking to get into crypto markets for nearly a decade. Victims of “pig slaughter” are usually new to cryptocurrencies and unknowingly send their savings to these scammers. More robust markets in the US with safe investment opportunities from both crypto-native companies and traditional financial institutions, would reduce the scope and effectiveness of these operations.
retreat to the United States
Out of the 15 largest cryptocurrency exchanges by volume, only three are American companies. While China banned cryptocurrency trading in 2017 and transactions in 2021, the other 12 largest exchanges by volume all have ties to China or Hong Kong, which China has historically used widely to access global markets and reportedly does now as such uses proving grounds for crypto markets. That equates to over $10 billion in daily trading volume outside of U.S. jurisdiction.
Simultaneously and especially lately with the current regulatory landscapeSome of America’s largest market makers and exchanges are relocating overseas. Jane Street and Jump Crypto, for example, have both scaled back operations in the US, and many others are looking for new headquarters in Dubai, Singapore, Hong Kong, and other jurisdictions that have established clear regulatory frameworks. Coinbase, the US-based public exchange recently sued by the SEC, is considering establishing an international hub in the United Arab Emirates, and Galaxy Digital, a crypto investment company, is moving more of its operations overseas. Coinbase and Gemini, another US-based exchange, also recently launched derivatives platforms for non-US users.
This industry isn’t going away — it’s just going offshore — and America is losing what little influence it has on its development.
What’s next?
A future in which China leads the way in cryptocurrencies means less financial freedom for those who adopt its system, less creative influence, more opportunities for hidden financial crimes, a limited US ability to impose sanctions and other financial penalties around the world , and less dependence on China US financial companies and the US dollar.
America needs something more thoughtful and strategic than just a stock market crackdown. Despite the recent challenges the cryptocurrency markets have faced – scams, scams, hacks, and a bear market – decentralized finance has proven its value proposition and will bounce back continue to play an increasing role in our global markets.
When China announced that it would launch a pilot digital yuan in May 2020, Mu Changchun, head of the PBoC’s digital currency research institute, reported on the country’s “horse-racing approach” to cryptocurrencies and cryptocurrencies at a forum in Hong Kong that “The leader will conquer the whole market – who is more efficient, who can provide a better service to the public – he can survive in the future.”
America must respond. The US can win, as always, with what is fundamental to America: an open society with bold thinkers and entrepreneurs who push the boundaries of the system with responsible technological innovation. We need to encourage innovation in decentralized finance, because that’s the only way US interests can win this “horse race.” Our national security depends on it.
Adam Zarazinski is the founder of digital asset data analytics company Inca Digital and a Major in the Air Force Reserve’s JAG Corps. The opinions expressed in Fortune.com comments are solely the views of their authors and do not necessarily reflect the opinions and beliefs of wealth.
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