Banning cryptos in the cash-starved economy

“The more government bans it, the more popular it gets,” that is exactly what happens to bitcoin and other cryptocurrencies.

Financial Matters with Tinashe Kaduwo

Every few months, we hear that bitcoin has been banned by some country or the other. As early as 2013, bitcoin was banned by Thailand. In 2017, it was big news when China banned bitcoin and the latest news carries a ban by the Reserve Bank of Zimbabwe (RBZ), joining countries such as Iran on that. The directive by the RBZ to stop trading of bitcoin to all financial institutions may be interpreted as a move by the monetary authorities to ban cryptocurrencies in the country; that is going against the grain.

Generally, it is simply not possible to ban bitcoin. Bitcoin’s price last year was hovering around the US$1 000 mark, whereas right now, it is in the US$9 000 range. This is in spite of all the bans by many governments around the globe. A different approach is needed to understand how they work and why they were created in the first place. Bitcoin and most cryptocurrencies that run on blockchain technology are decentralised, implying that they do not run on one server IP address.

These virtual currencies run on multiple nodes that can be owned and run by anyone and are usually spread across the globe. There is no central point for the governments to attack or block. Monetary authorities normally caution or prevent banks from dealing in cryptocurrencies. The RBZ ban has only prevented institutions regulated by the central bank to deal with businesses that have anything to do with cryptocurrencies. Practically, this means banks will have to stop deposits and withdrawals on cryptocurrency exchanges.

The RBZ issued several warnings about scams and risks related to cryptocurrencies. “Any person who buys, sells, or otherwise transacts in cryptocurrencies, whether online, or otherwise, does so at their own risk and will have no recourse to the Reserve Bank or to any regulatory authority in the country,” the RBZ warned in a statement.

However, traders are still buying and selling cryptocurrencies and they are increasingly becoming popular in the country. Governments cannot technically ban cryptocurrencies. Other countries like China and the United States have already tried banning exchanges and mining of cryptocurrencies. Although those events in 2017 caused the price of bitcoin to fall temporarily, it went on to peak at US$19 783 on December 17.

Since most of the trading happens on international exchanges, the official ban will only make Zimbabweans buy cryptocurrencies from foreign sources or resort to over-the-counter options because it is simply not possible to track buying, trading or selling of cryptocurrencies. Generally, with bitcoin, we have seen the Streisand Effect in play — which means the more governments try to ban it, the more popular it gets, the more news, the more coverage.

The progressive way forward about is to improve or try to find means of regulating these cryptocurrencies. The RBZ has to put in place measures and checks in place to ensure that the transacting public is not duped, profits are taxed and that exchanges follow KYC norms and legal compliances. That would make it much safer for Zimbabwean citizens to buy, trade and profit from this revolution and be educated about its risks. In the US, for example, in February 2018, the government called for inter-departmental cooperation and allocated resources with the aim to create new legislation to govern virtual currencies.

There is also an opportunity for our country to become the Switzerland or Singapore of the next century. Regulation is needed rather than a ban. Malta is already going down this path and attracting major blockchain players, including the largest international exchange at this time with profits of more than US$200 million, which is by far more than profits of all banks in the country.

As countries grapple with regulation and laws, the cryptocurrency market cap keeps soaring every year. Government wants to ban it because it undermines the power of banks and monetary authorities. For Zimbabwe, which does not have its own currency, there is no good reason to ban cryptocurrencies.

Kaduwo is an economist at Econometer Global Capital. — tkaduwo@econometerglobalcapital.com or kaduwot@gmail.com.

One Response to Banning cryptos in the cash-starved economy

  1. steve blomefield May 18, 2018 at 11:03 am #

    In December last year, I warned those who were bitcoin crazy [Steve Blomefield youtube]….that while the bitcoins would probably go up, that they would crash. Exactly as predicted it shot up to $19,000 and then suddenly crashed to $6000. All those Zimbabweans who bought bitcoin at 10,000 or more have given away their cash. I specifically warned people that at even 1 cent bitcoin was in a bubble since a bitcoin is only a few colored pixels on a screen. Bitcoin is highly addictive since if the price is going down you either buy or hold since you believe that the price will go up and up and up and that this down phase is merely a phase. If however, the price is going up you hold because you think that the price will go up to a trillion dollars. Read up on the greater fool theory. Centuries ago in Holland, the Dutch were buying tulip bulbs and reselling them. One fool was selling a bulb to a greater fool who was willing to sell to a greater fool, the price going up every time. Bulbs were rocketing in price until people started to sell, sell, sell. People lost their fortunes and people were left penniless. Yet you can see the incredible scams that are happening that will cause people to lose faith in the unregulated bitcoin… and … if you are well informed a currency only has value if people trust it. Trust in bitcoin is being eroded and scammers, pump-and-dump-sters are proliferating faster than lab rats. Youtube channels are infested with bitcoin evangelists who convert innocent people into buying bitcoin, thus swelling the price and their prosperity. Sites like jsnip4 who used to pump bitcoin are now pumping other coins like etherium etc. These, in turn, will shoot up in value and crash. I believe blockchain technology can have a useful purpose but stay away from bitcoin. You have been warned.

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