Bitcoin investors might want to pay more attention to developments in China going forward because the Bitcoin industry tends to catch a cold every time Chine sneezes. China is one of Bitcoin’s biggest markets and the cryptocurrency has an impressive adoption and market penetration in the country. In fact, analysts have submitted that Chinese Bitcoin exchanges recorded about 42% of Bitcoin transactions globally in 2016.
In the last couple of weeks however, Bitcoin has been facing increased pressure stemming from the Chinese government’s efforts to put a muzzle on the use of Bitcoin in the country. The People’s Bank of China (PBOC) has said that it considers Bitcoin as a commodity (probably on par with gold) and not a currency. The PBOC also hinted that it would step up its regulatory oversight on the use of Bitcoin in the country. The development in China caused Bitcoin to lose its footing from around $1100 to its current $923 trading price.
China’s Bitcoin exchanges impose trading fees to appease regulators
Breaking news on Monday (January 23) shows that Bitcoin exchanges in China are trying to appease regulators by charging a 0.2% fee per Bitcoin transaction starting on Tuesday (January 24). The three biggest Bitcoin exchanges in China, BTCC, Houbi, and OKCcoin have all released statements on their intent to start charging 0.25% per transactions. All the three exchanges in separate statements noted that the reason for the charges is to “to further curb market manipulation and extreme volatility.”
At the start 2017, the People’s Bank of China has called for stricter regulation on the use of Bitcoin in China. The PBOC said it would start investigating Bitcoin transactions in order know the extent to which the cryptocurrency is being used to aid illegal transactions such as money laundering. Of a truth, many people in China are using Bitcoin to evade the country’s draconian laws aimed to stopping capital outflow from the country.
However, the increased adoption of Bitcoin for transactions and payments at lieu of the Chinese Yuan has reduced the demand for the Yuan and the Yuan is under pressure in the forex markets. For instance, in 2016, the Yuan CNY=CFXS declined 6.6% against the USD to mark its weakest full year performance since 1994. Hence, it doesn’t take much analysis to deduce that the PBOC is mounting pressure on Bitcoin in order to reduce interest in the cryptocurrency.
How far will China’s exchanges go to please regulators
Chinese authorities are worried (and with good reason) that people are using Bitcoin to move their wealth out of China. Hence, they have a strong enough motive to frustrate Bitcoin users in the country. Bitcoin exchanges are businesses and they must remain in the good books of the government to succeed especially in places like China where the government lords it over all.
In addition to the transaction charges, the three biggest Bitcoin exchanges in China have also stopped leverage trades that allow people to do something akin to margin trading with Bitcoin. The ending of leveraged trades will also reduce the speculator element in Bitcoin transactions.
The fact that the exchanges all decided to start charging 0.25 transaction fee (on the same day) suggests that the move was a coordinated action even though the exchanges have avoided hinting that they made the decision under duress. Hence, we can submit that the exchanges won’t mind caving in to some of the demands of regulators inasmuch as the demand would help them stay in business even if it causes a ‘little’ inconvenience for their clients.