The Role Of China In The Burst Of Bitcoin
Jul 10, 2018
A report by the Daily Express (UK) discusses the role of China in the apparent burst of the Bitcoin bubble. I must note at this point that economically speaking, we do not believe Bitcoin is a bubble, but many do believe that this is the case. Whether they are right or wrong is totally up for debate.
The report stems from the fact that since September 2017, the buying and selling of Bitcoin against RMB (Chinese Yuan ¥) has fallen from 90% of the world’s total to just 1%.
Much of this is of course due to the recent decision to ban cryptocurrencies in China. According to the Daily Express:
“The total ban in China came in at the start of February 2018 when the People's Bank of China (PBOC) - the central regulatory authority for financial institutions and monetary policy - issued a statement that it would ‘block access to all domestic and foreign cryptocurrency exchanges and ICO websites.’ However the scrutiny began before the outright ban and The People's Bank of China has now confirmed that it ensured a zero-risk exit for 88 virtual currency exchanges and 85 ICO trading platforms, since September 2017.”
See more for yourself, here.
Experts now believe that increased interest in China between September 2017 and February 2018 had two major effects. First of all, it encouraged the price of Bitcoin to skyrocket. Flying prices and emerging currencies encouraged more and more Chinese interest. This in turn caused some concern as ultimately, with 90% of the worlds trading in Bitcoin coming through China, this could very well start the challenge the Yuan. Therefore, authorities implemented a ban. Through the ban, interest declined and along with it, so did the value of the currency. Causing what many people refer to as a bubble, to burst.
What do we think about this?
Once again, we don’t think Bitcoin is a bubble, economically speaking. Moreover I am not confident that the statistics provided by the Daily Express are totally accurate, they don’t make it clear if they are claiming 90% of all Bitcoin trading (against FIAT and crypto) came through China in September 2017, or if they are simply just referring to trading of Bitcoin against RMB. If the latter is the case, given that RMB is generally only used in China, Tibet and Zimbabwe then it is pretty clear that 90% of Bitcoin - RMB trading would come via China.
In either instance, the argument does make some sense and indeed, moves by the Chinese authorities will have had an impact on the markets, I just think that reference to a bubble is a little extreme in this instance.
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