Many in the mainstream media were quick to publish stories last week announcing China’s clampdown on bitcoin after the government became worried about capital flight out of the country. However, the extent to which the industry will be impacted by any decision has been overstated. China has not banned bitcoin and currently has no plans to do so.
The People’s Bank of China (PBOC) released a statement outlining their recognition of bitcoin as a virtual good without legal tender status but there was no mention of any future plans to block bitcoin transactions or trading. The consensus from the bitcoin community was that this was more of an acknowledgement from the PBOC of what it regarded as “unusual” trading movements in recent days with insiders not being too concerned.
Chinese rules currently state that individuals are limited to $50,000 of foreign exchange each year and it has been argued that the decentralisation of bitcoin encourages these laws to be flouted. This is a minor concern with the majority of traders and owners acting in accordance with these laws. The price premium on the renminbi to other countries remains prohibitive to orders of the sort of levels that the government may otherwise be concerned with.
BTCC, a major Chinese bitcoin exchange, did their part along with competitors in the aftermath of the price slump last week to reassure users that they had held discussions with the PBOC and remains operational in accordance with relevant Chinese law. Bobby Lee, the CEO of BTCC, has instead been pleased with various indicators such as new users and active trading accounts and some other metrics operating at “all-time highs”.
A large proportion of daily bitcoin trading occurs within China, and so this is good news for the cryptocurrency industry. As mentioned in previous posts, heavy-handed regulation should be avoided by any governments wanting a competitive marketplace which bitcoin contributes to, rather than detracts from. This is particularly true in countries where internet connectivity and smartphone usage is strong but the banking infrastructure is not yet as developed.