Ron Insana: China may be the first to ban bitcoin, but it won’t be the last

I've noted in past commentaries that sovereign nations have the power to regulate and eliminate any competitor to their own currencies. One country took that step on Friday.

China's central bank has just made all cryptocurrency-related activities illegal. The value of bitcoin plunged over 5%, while other digital coins are also trading lower on the day.

What China did may well be repeated in other countries.

Regulators in the U.S. have already expressed some notable disdain for replacing the U.S. dollar, the reserve currency of the world, with any crypto except for a central bank digital currency.

In other words, the only way to replace the dollar is to create a digital version of it, with the support of the Federal Reserve, the U.S. Treasury and Congress.

Securities and Exchange Commission Chairman Gary Gensler who, himself taught a class on cryptocurrencies at MIT, has suggested that decentralized finance and the world in which bitcoin and other cryptos reside, has no rightful place in the U.S. financial system without meaningful oversight and additional regulations.

This may well be a precursor to the U.S. taking steps that render bitcoin, and other cryptos, but not the transformational blockchain technology underlying it, effectively illegal or unusable.

So-called "stablecoins," backed by interest bearing securities on a dollar-for-dollar basis, may also be at risk since they rely on the U.S. dollar itself for supporting their values and may well be investing in risky securities to deliver a positive yield.

This shot across the bow in China may well just be the first in a series of similar moves around the world.

Crypto bulls have long argued that DeFi, and alternative currencies, are outside the reach of sovereign nations but, as we have seen today, that is far from the truth.

As outright bans and tighter regulations squeeze the value of cryptocurrencies, they also send a message that the fundamental precept on which crypto is based, is flawed, at best.

In a recent talk at a Washington Post event, Gensler pointed to the period in the United States in which individual state-chartered banks issued their own scrip, or currency.

He referred to those days as the "wildcat banking" era. Bank scrip had no intrinsic value except for how individual bank notes were valued against one another, based on perceived safety and soundness.

That experience did not end well and ultimately forced the U.S. to centralize its financial system, led to the creation of a single currency, the U.S. dollar, and, eventually to the creation of the Federal Reserve.

Countries do not, and will not, let their institutions, or their currencies, fall by the wayside because an independent group of currency creators decides it must be so.

The U.S. Constitution grants the power to print and coin money to Congress. Obviously, that power has been challenged several times in our history.

But nations lean toward centralization and control, especially when it comes to money.

China may be the first to ban bitcoin, and other currencies, but I am sure it won't be the last.

While there are vast differences between the U.S. and China when it comes to revolutionary technological advances, challenging the existing order is not one of those differences.

If it can happen there, it can happen here.

Bitcoin buyer, beware.

—Ron Insana is a CNBC contributor and a senior advisor at Schroders.

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