Chinese Demand Rallies Bitcoin Prices, Online Services to Replace Silk Road

With Baidu, the Google of China announcing that it will accept bitcoins, rising demand in the country for the digital currency has led BTCUSD prices to exceed levels of those before Silk Road's seizure.

A Virtual $27 Became A Very Real $866,000: The Accidental Fortune of Kristoffer Koch

Norwegian student Kristoffer Koch invested $27 in March 2009 to buy 5,000 Bitcoins as part of a university thesis, subsequently forgetting that he had done so. Today, Mr. Koch's tiny investment is worth $866,000.

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So much for Silk Road’s demise taking a bite out of bitcoin’s global demand. Since the announcement of the FBI seizure of the website, prices tanked below $100, only to rebound and rally to their highest levels since May. Currently trading at $145 on BitStamp and $160 on MtGox, bitcoin prices are now more than 10% above their pre-Silk Road seizure levels.

In a story being covered by our sister site, Payment Magnates, driving the demand has been the announcement that Baidu, touted as the ‘Google of China’, will begin to accept bitcoins for payment of its Jaisule, firewall and DDOS services. With the news, Baidu becomes the largest and most recognizable firm to begin to accept bitcoins. It also further demonstrates the interest of the Chinese population in bitcoins and virtual currencies.

btc chinaAs a result of the news, and demand from China, trading at the BTC China, the country’s largest bitcoin exchange has more than doubled. In terms of total market share, according to statistics from Bitcoinity, over the last three days BTC China’s market share of bitcoin volumes across exchanges has risen over 22%, from around 10% a month ago. With the activity, BTC China is now sitting near BitStamp and MtGox as the top three exchanges in terms of volumes.

Online services, the new Silk Road

In regards to Baidu, among the issues affecting bitcoin’s adoption among consumers is a relatively small market to spend them. While there is a growing group of websites, cafes, and bars that accept them, the reality is that taking into account the price volatility and fees involved in acquiring bitcoins, for local purchases fiat currency still rules.

One area where bitcoins could dominate is with online services. Unlike sellers of physical goods, where margins are tighter and currency fluctuation have a greater effect on bottom lines, operating margins on digital services are nearly 100%. While software companies and operators of digital marketplaces that sell MP3 songs and e-books retain costly infrastructure and employees, from a cost of goods perspective there is very little difference how much is sold. In addition, as online businesses, country borders are much less of a boundary to doing business. Due to these considerations, bitcoins are a natural fit for online service transactions.

In this regard, Baidu’s announcement is more than just a large firm accepting bitcoin. What Baidu brings to the table is a major digital service business with a large footprint among technology users, who are more likely to be holding bitcoins than the average online consumer. As a result, if proven successful, especially in regards to attracting additional global clients, Baidu is primed to become a trendsetter to many more services embracing bitcoin payments.

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1 Comment

  1. iceCUBED

    Overall, the Silk Road event is good news for Bitcoin as it removed one of the principal targets which the media have been using against Bitcoin. It paves the way for further progress into the mainstream of acceptance in the public mind. Now the main advantages of Bitcoin can be addressed (online payments without fraud risk, overseas remittances made simple and fast, zero/low transfer fees) without having to defend or excuse it’s use for illicit online drug purchases. And the case for governments, banks and investors to embrace and work with the Bitcoin protocol is strengthened.

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