China banned crypto currency transactions last month, including Bitcoin mining (the energy guzzling process of creating new Bitcoin), and within days the price of Bitcoin fell by $2,000. In itself that’s hardly surprising: China is one of the biggest crypto markets in the world, but the immediate market reaction was still perplexing, because China had already been operating a total ban on crypto trading since 2019. How had the market sustained itself in the intervening two years, and why was the earlier ban followed by a surge in price (as it was) rather than a fall? You probably don’t need me to spell it out, but here goes…no matter how significant individual market sectors might be (China in this case), where the market itself is truly global and seamlessly cross border (as it is for Bitcoin and Blockchain), traders will still trade at the same volumes regardless of local restrictions…they just do it somewhere else.

So squeezing the Bitcoin balloon in China only makes it pop up somewhere else, which is why, following Beijing’s most recent announcement, we saw not only a short term global fall in price but also a geographical shift in crypto activity…its come to be known as“ the Great Bitcoin Migration”… and its happening right now in Texas.

Not a Horror Movie…even with Ted Cruz

In the aftermath of China’s most recent ban, the Texas Blockchain Council corralled together seventy prominent members, and will this month launch the Texas Blockchain Summit (which might sound like a 1980’s horror movie, but it’s actually the biggest crypto event ever held in the United States): Ted Cruz will be on the platform, so beneath that suspicious beard and curious affection for a twice impeached President, he clearly knows a good thing when he sees it. And even the Texas Governor, Greg Abbott, has jumped on the covered wagon: “Texas”, he barked, “will be a crypto leader…cryptocurrency is coming to grocery stores in Texas”, as indeed it is: H-E-B (a leading local retailer of everything from Golden Grahams to guns) has been rushing to install Bitcoin kiosks for its customers, riding on the coat tails of legislation introduced this June giving legal recognition to cryptocurrencies (Rhode Island and Wyoming beat Texas to the punch by several months, but hey, Texas does everything bigger, even if it does it slower).

So, you might ask, what’s going on here? Isn’t trading in cryptocurrencies still illegal in the United States…why all the hoopla?

Yes and No

Well yes and no: yes, it’s illegal as a form of money (as a genuine alternative to the greenback), that’s not allowed…but no, it is legal as a commodity in itself, freely traded just like pork bellies and frozen concentrated orange juice. That’s not the whole picture either, because Federal Law isn’t everything: States are allowed to enact their own laws, provided they don’t affect interstate commerce or impair individual rights under the Constitution: that’s why Texas (Rhode Island and Wyoming too (recently rebranded “the Bitcoin State”)) have been able to sneak cryptocurrencies in under the Federal radar, because they have a right to legislate them in (and, indeed, two of them fought a Civil War to establish that right, albeit Texas was on the losing side, and Wyoming wasn’t a State at all until thirty years after the war…so they don’t count).

As a result the Bitcoin State (see above) now has over a dozen pieces of local legislation making it easier to deal in cryptocurrencies, including affording them the same legal status as the dollar, and enabling state banks to hold digital assets in custody (which is important for tradability and final conversion). And even at Federal level, the US Treasury Department is finally loosening up, having issued guidelines which authorise Bitcoin to be used as a method of payment (resonating uneasily with its earlier decision to withhold authorisation for non commodity based transactions): in the process, that has further freed up the ability of Texans, Rhode Islanders and Wyoming residents to trade out of state (useful if they’re using the internet, which most of them probably are).

And it’s precisely this degree of “flexibility” that has now opened the door to Texas making its move to scrap licencing restrictions on the sale of Bitcoin, whereas in New York you still need a BitLicence (www.dfs.ny.gov) to sell the same coin, and in Texas you still need a “dealing’ licence if the ATM in question is connected to a cryptocurrency exchange where the Bitcoin (or other cryptocurrency) was purchased.

The Bigger Picture

Got that? All clear so far…maybe not. So here’s the bigger picture…

Adjusting to change, especially in regulated markets like cryptocurrencies, is always a messy business. There are no clear guidelines or boundaries, and it isn’t just the United States where it’s unhelpful to look for them. In India crypto transactions were illegal until last year (just like they are now in China), but then the Supreme Court declared the ban unlawful, and the Government is now busily creating a new regulatory system for crypto markets by way of its “sandbox’ initiative (www.cryptobriefing.com). As ever, the markets themselves blithely carry on in a state of flux, and cryptocurrency markets are no different: trying to predict what comes next is like trying to drive only using the rear view mirror.

So the trick is to look for the bigger picture as it evolves, and the bigger picture for Blockchain and Bitcoin couldn’t be clearer. At its most rudimentary, Blockchain is the obvious future for Internet commerce: faster, cheaper (because it cuts out intermediaries), and more responsive to rapidly changing trends. And in turn, Internet based commerce is the future of…well commerce, clean across the globe, so both it and Blockchain will grow together. That’s not a trend any single government (including China) can stop or wants to stop. And then, of course, Bitcoin is Blockchain’s twin brother: they will grow, and grow inexorably, together…fuelled by a tectonic shift towards digital technologies. That’s the bigger picture.

The confusions currently evident in the US (and other territories across the globe) are simply the birth pangs of progress. Whatever China might think or do in the meantime, those changes are bound to create new opportunities for cryptocurrencies…

Executive Overview

Changes in the regulation and operation of cryptocurrency markets happen so quickly that its sometimes hard to keep track of them. But in many ways that’s the point…the resulting state of flux and transition creates an incubator for opportunity, so we need to keep our eye on the bigger picture.