In past comments, I have noted that sovereign nations can regulate and eliminate competitors to their currencies. On Friday, one country did that.
China's central bank has just made all cryptocurrency-related activities illegal. Bitcoin's value plunged more than 5% while other digital coins trade lower every day.
China's example may be replicated in other countries.
The U.S. regulators have expressed disapproval at the idea of replacing the U.S. Dollar, the reserve currency, with any crypto, other than a central bank digital money.
The only way to replace dollar is to create digital versions of it with the support from the Federal Reserve, U.S. Treasury, and Congress.
Gary Gensler, Chairman of Securities and Exchange Commission, who taught a course on cryptocurrencies at MIT himself, suggested that decentralized finance and cryptos in general have no place in the U.S. financial systems without additional oversight and regulations.
This could be an indication that the U.S. will take steps to make bitcoin and other cryptos illegal or inaccessible.
The so-called "stablecoins" are backed by interest-bearing securities on a dollar for dollar basis. They may be vulnerable as they rely on the U.S. Dollar to support their values.
This shot across the bow in China could be just the beginning of a series.
Although crypto bulls believe that DeFi and other currencies are beyond the reach of sovereign countries, we now know that this is far from true.
Outright bans or tighter regulations reduce the value of crypto currencies. They also signal that the basic precept upon which crypto is built is flawed at best.
Gensler spoke at a Washington Post event recently and referred to the time in America when individual state-chartered bank issued their own currency or scrip.
He called those days the "wildcat banking era". Bank scrip was not intrinsically valuable, except for the way individual bank notes were valued in relation to each other on the basis of perceived safety and soundness.
This experience was not a good one and eventually led to the U.S. centralizing its financial system. It also led to the creation a single currency, which is the U.S. Dollar, and then to the formation of the Federal Reserve.
Because a group of independent currency creators has decided it must be so, countries do not and won't let their institutions or their currencies go.
The power to print and to coin money is granted to Congress by the U.S. Constitution. This power has been challenged many times throughout history.
However, nations tend to favor centralization and control when it comes money.
China may ban bitcoin and other currencies first, but it will not be the last.
Although there are many differences between China and the U.S. in technological advancements, the challenge to the existing order is not one.
It can happen anywhere, but it can happen here.
Beware of the Bitcoin buyer
Ron Insana, a CNBC contributor, is a senior advisor at Schroders.
