From the mid to the end of 2013, bitcoin market participants came to realize an interesting fact: the major role in bitcoin expansion has not been played by typical financial and technological hubs, such as New York, London or Silicon Valley. As the matter stands, that is China, whose contribution to the process of bitcoin popularization is really significant and powerful.
In April 2013 exchange BTC China witnessed the record bitcoin exchange rate: $308 for 1 BTC. The volume of the trades also considerably outperformed MtGox. Chinese factories were cranking out mining machines, while the country’s residents created more bitcoin wallets than anyone else in the world.
At the beginning of November China became the leading player at bitcoin market - bitcoin price rocketed up exponentially. A couple of weeks from that - and the bitcoin exchange rate broke all the records and outreached unbelievable $1,230 for 1 BTC.
On December 5th, The People’s Bank of China (PBOC) issued a report in which they strongly recommended all the Chinese financial institutions to steer clear from bitcoins. This decision became the first in the string of effective governmental actions aimed at prevention of bitcoin integration into the everyday economy of China. The exchange platforms took immediate actions following the governmental lead - and the price of bitcoin plummeted by 25%, the rest being history.
Nowadays, China boasts their crypto-currency trading exchanges, which are among the biggest in the world. They are also proud of their bitcoin mining mega factories. As one of the local investors put it:”Trust China to turn bitcoin into another manufacturing industry.”.
Zennon Kapron, the owner of the Shanghai-based consultancy Kapronasia, is a financial technology expert. Recently Zennon has written a book called Chomping at the Bitcoin, in which he presented his understanding of the investment markets in China, deliberated on the problems of mining and gave a prescient warning about government intervention in crypto-currency business.
Although the book is brimming with enthusiasm regarding the bitcoin future as the cutting edge technology, Kapron has somehow downgraded his short-term expectations concerning bitcoin success in China.
That’s how Zennon comments on his quite grim prognoses: “Considering the rarity of credit card chargebacks and the low fees available for existing payment options in the country, there just isn’t a compelling use case. Speculators, meanwhile, have moved on to other investment opportunities”.
As for the People’s Bank of China policy, Kapron believes that bitcoins “got in the way” of the Chinese authorities’ “cautious and pragmatic approach” to economic reform. The government believes that the stronger crypto-currencies become the more potential they have to destabilize economic growth of China and financial prosperity of its residents.
The Role of Crypto-Currency
Zennon Kapron believes that the idea that wealthy Chinese would use bitcoin as a means to bypass strict capital controls on the yuan failed. There’s the permission to annually move up to $50,000 worth in assets or funds out of the country. The businesspeople that need to go over this limit use third-party services. The funds are transferred within 1 business day at the commission of just 1%, which is considerably cheaper than bitcoin exchanges.
The public usage of bitcoins is still considered a marketing stunt for drawing the attention to crypto-currencies. The main contribution of China into bitcoin infrastructure remains mining and trading. However, at the moment China is not ready for internal financial revolution.
Zennon states, that prospects of bitcoin in China do not differ from the ones in all the rest of the world. Bitcoins must move beyond being a speculative tool hoarded by users, he says, and become something actually useful in daily transactions.