Executive Summary

• How will increasing capital controls around the world affect demand for cryptocurrencies?
• The big banks and corporations are embracing the blockchain. Will that make it harder to ban cryptocurrencies?
• With far less than 1% of the population holding cryptocurrencies, how large is the remaining updside?
• What the future may hold for bitcoin and its digital brethren

If you have not yet read An Everyman's Guide To Understanding Cryptocurrencies, available free to all readers, please click here to read it first.

In Part 1, we sketched a brief overview of cryptocurrencies and their potential role as a means of transferring and thus preserving capital from depreciating currencies in destabilized economies to more secure currencies/assets elsewhere in the world.

The Rise of Capital Controls Fuels the Use of Cryptocurrencies

As governments actively devalue their currencies (thereby making everyone using the currency poorer), their citizenry with financial capital are forced to seek ways to move their at-risk wealth into other currencies or assets.

China is a prime example of this trend. As the U.S. dollar has soared 20+%, China’s currency has strengthened along with the USD due to the yuan being pegged to the USD. In response, China must devalue its currency to maintain the global competitiveness of its export sector.

Faced with a massive loss of purchasing power, China’s wealthy class has moved their wealth and their families out of China. This flood of capital has pushed up housing prices in favored markets such as Vancouver B.C. and west coast cities in the U.S.

The sums being transferred abroad are non-trivial. Estimates range into the trillions of dollars. Many observers see the rise of capital controls as inevitable, as China must eventually stem the tide of fleeing capital. There are already stories of Chinese nationals stuffing their clothing with dollars to physically transport their wealth overseas, and other accounts of novel schemes to transfer wealth digitally, such as buying domain names for absurdly high sums in yuan and then selling them overseas in dollars.

While exchanging yuan for gold secures the at-risk wealth, it doesn’t transport it safely abroad.