It was about one year ago that bitcoin’s price dropped by nearly 50% during March, one of its more volatile months. At the time, the steep drop was believed to have been motivated by fears of a “renewed crackdown” on Bitcoin by the Chinese government.
It was the People’s Bank of China (PBOC) that apparently first sent prices tumbling in early December 2013, with their prohibiting of financial institutions and payment processors dealing in bitcoin. Thereafter, it was quite common to raise the China issue in any discussion on the outlook of Bitcoin’s future and price. This intensified throughout April, as reports began trickling in of banks taking action to close accounts of Bitcoin exchanges, reinforcing fears that the Chinese government was steadily tightening its grip in an apparent bid to rid the country of the cryptocurrency.
In May, the five heads of prominent Bitcoin exchanges in the country withdrew from the Global Bitcoin Summit in Beijing. Thereafter, all was quiet. There was actually more positive news in the form of exchanges discovering other ways of transferring money. China was barely in the headline news, a trend which continues until today.
The ‘Post-China’ Era
In hindsight, the price crashes in early 2014 may have been more a result of deflation of the speculative bubble than China fears, although the two likely fed off each other. Though prices enjoyed a successful May, June and July, they resumed their decline from August onward, further indicating that it’s not all about China.
China was mainly responsible for inflating the great bubble of November 2013, much of the volume taking place on Huobi, then reportedly becoming the world’s largest Bitcoin exchange by volume. The exchange has recently sought to reassure the public that Bitcoin is in fact doing well in China. In some respects, it may be doing better than in the US. An excerpt from a statement reads:
“Contrary to what much of the international Bitcoin community has been led to believe, the regulatory environment for operating Bitcoin businesses in China is actually more accommodating than the United States and many other countries. That is part of the reason why there are so many Bitcoin exchanges operating here. It does not require millions of dollars and months of work just to get a license to operate.”
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As to the PBOC action in December 2013, which according to Huobi, was the only major action taken, it was beneficial to protect investors from a bubble which would have grown even bigger had action not been taken. Investors, some investing large sums or even life savings, would have blamed regulators for their inaction, the exchange argues.
Robert Kuhne of Huobi told DC Magnates that although there were account closures last April, these were actions taken by banks and lower level bureaucrats on their own in an attempt to interpret the single December PBOC edict. Reports at the time suggested that the PBOC had issued specific directives for the closures, but details were sketchy and many rumors were intermingled in reports.
In addition, said Kuhne, the banks’ actions were not much different from for example, the US, where accounts tied to Bitcoin businesses and transactions are frequently closed due to risk aversion.
Currently, exchange clients in China can make deposits through online banking, which show up in their accounts within an hour.
Huobi further argued that with a market cap of less than $4 billion, Bitcoin is not significant enough for authorities to worry about at the current time. Only if it grows significantly would the government begin taking steps in favor of or against it.
In fact, there have been some accommodative statements issued by PBOC officials during the past few months. This past December, former PBOC deputy director and current member of the NPC standing committee, Wu Xiaoling, reportedly suggested that the government will take a hands-off approach to Bitcoin. In June, Deputy Secretary of the PBOC’s Survey and Statistics Department, Xu Nuojin, stated that there is “room for Bitcoin to exist” as part of comments delivered on how the internet will shape finance in the future.
Huobi does suggest that players in the local Bitcoin industry work together on self-regulation so that “Bitcoin will be perceived by the general public and government and financial elites as an innovative, wealth-creating technology which should be allowed to flourish.” Should they fail to do so, Bitcoin may be more perceived as a risky scheme associated with money laundering and criminal activity.