China’s crackdown on bitcoin contradicts Peter Thiel’s belief that it is a ‘financial weapon’ against the US.

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Billionaire venture capitalist Peter Thiel caused a sensation Tuesday when he suggested that Bitcoin could be seen as “in part a Chinese financial weapon against the United States” because, he argued, bitcoin undermines the status of the US dollar as a world reserve currency. “From China’s point of view, they don’t like the US having this reserve currency because it gives the US a lot of leverage over Iranian oil supplies and all sorts of things like that,” PayPal said. PYPL, founder of + 2.76% and Facebook. FB said a -0.51% board member during a virtual event for the Richard Nixon Foundation. Bitcoin BTCUSD, + 2.91%, he added, “threatens fiat money, but especially threatens the US dollar, and China wants to do things to weaken it.”

Read more: China may be using bitcoin as a ‘financial weapon’ against the US, says Peter Thiel Thiel’s past statements on bitcoin, along with China’s general policy towards virtual currency, may be at odds with his latest analysis . In 2018, for example, Thiel told CNBC that he saw Bitcoin as an excellent store of value, but not something that would likely be used for day-to-day transactions. “I’m not talking about a new payment system,” because the transaction costs are too high, Thiel said. Rather, “it’s like bars of gold in a vault that never move, and it’s kind of a hedge against the entire world collapsing,” he said. Investors often compare bitcoin to gold, traditionally seen as a hedge against inflation or a severe economic downturn, and some analysts have used gold’s current market capitalization as a means of calculating a long-term target price for bitcoin. But conceiving bitcoin as digital gold by definition means that it will not serve as a replacement for the DXY dollar, -0.37% as a medium for daily transactions. As for whether bitcoin threatens the US dollar as a world reserve currency, most economists doubt. “The dollar is the main reserve currency in the world because it has a stable value (low inflation), a great supply of safe assets and the credibility of the economic and legal system of the United States,” said Agustín Carstens, general manager of Bank for International . Settlements, he said in a January speech. “Investors can also easily access the deep and efficient capital markets of the United States, without worrying about capital controls,” he added. “These factors are likely to remain the main drivers of the state of the global reserve currency.” Bitcoin does not share the traits listed above – it does not hold a stable value and its fixed number of currencies means that it cannot keep up with an insatiable global demand for safe assets as the US debt market does. In fact, the Investors’ willingness to fund more than $ 21 trillion in US government debt, often at negative real interest rates, shows that the US dollar continues to have mass appeal even as cryptocurrencies go mainstream. Furthermore, China’s actions over the past decade show that it is deeply skeptical of bitcoin and likely sees it as a threat to the power of the Chinese Communist Party. In 2017, the People’s Bank of China and five other ministries banned cryptocurrency financing, such as initial coin offerings, and banned the exchange of fiat money for cryptocurrency, according to Rain Xie of the University of Washington School of Law. She argued that one of the main reasons for this ban was the result of China’s strict capital controls, aimed at preventing wealth from leaving China for other countries. To maintain these controls and allow cryptocurrency transactions, Chinese banks had to undertake “a technologically untraceable mission to impose limitations on every anonymous and encrypted cryptocurrency transaction of every Chinese user.” Such a crackdown on private cryptocurrencies can hardly be considered useful in promoting bitcoin as a competitive reserve currency with the US dollar. Instead, China has built its own central bank digital currency, a digital yuan as a counterweight to popular digital payment platforms. See also: Will China’s new digital yuan threaten the reign of the King Dollar? “A lot of financial activity in China is happening through platforms like AliPay and WeChat Pay, and the central bank and other regulators did not have much visibility of that activity and that is something that the Chinese authorities do not like,” Stephanie Segal. a principal investigator from the Center for Strategic and International Studies told MarketWatch on Tuesday. Meanwhile, China’s economy relies heavily on the patience of state banks, which roll over delinquent loans to avoid disruption from bankrupt financial institutions. “That can be maintained as long as you have a constant source of funding,” in the form of consumer deposits, but a growing private money system could undermine that, Segal said. China may be irritated by the geopolitical power given to the US government by the popularity of the dollar, but cryptocurrencies appear to be a greater threat to the power of the Chinese Communist Party than to the dollar’s status as a world reserve currency.