Bitcoin’s recent price correction came off the back of the People’s Bank of China announcing an “inspection” into exchanges BTC China, Huobi and OKCoin. Panic merchants wrote another Bitcoin obituary (currently at 119 since 2013), yet bitcoins are still worth 50 per cent more than they were three months ago.
People’s main concern around Bitcoin is the perception that it is somehow “controlled” by the Chinese, as Chinese exchanges account for the majority of trading volume. Although volumes are significant, they are not as high as the stats say; suggested by Coinbase CEO, Brian Armstrong in a recent tweet stream.
Why is it innacurate? COO of Remitsy, Neil Woodfine explains; “Chinese exchanges generate most of their revenue from CNY withdrawal fees . And these CNY withdrawal fees are tiered based on each trader’s trade volume, encouraging traders to trade as much as possible to lower the cost of withdrawing their profits.
A more malign form of this behaviour is wash trading. Put simply, a trader could set up two separate accounts and — using his trading software — trade his bitcoin back and forth rapidly. If his account only has one bitcoin, and he trades it one thousand times in the space of a day, he’s suddenly generated 1,000BTC in trade volume…without moving the price, at little to no cost (zero fees remember!), and an account balance of only 1BTC. No ‘real’ trading has taken place.”
Woodfine estimates the true Bitcoin Chinese trading figure at around 40–50% and “what is also missing from the equation is that a portion of traders on Chinese exchanges are not even Chinese. Foreign traders — some of them “whales” — are able to trade here too”.
The inspection into Chinese exchanges was to identify whether they were engaging in market manipulation – that’s a good thing. Yes, China is a big player in Bitcoin – but why would they crush the industry under heavy regulation? Cutting off their nose to spite their face?
In a worst-case scenario – China bans Bitcoin altogether – Bitcoin’s value proposition is too great to disappear. The market would dive underground, where it would be even harder to regulate. Eg: the Silk Road closure. When the FBI shut it down in October 2014, Silk Road and three similar sites listed 18,000 drug items for sale. Less than one year later there were 18 darknet sites with 47,000 drug listings in its place.
Matej Michalko, CEO of DECENT, a Blockchain based content distribution platform launching in China, states, “The truth is, China’s crypto-market seems rapidly developing, no one can deny that. However, Bitcoin is a global currency, not dependent on the single economy, no matter how powerful it is. China’s willingness to put effort on Bitcoin trading should encourage other countries to adapt their legislature in favour of a more flexible approach to cryptocurrencies.”
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