The rise of Bitcoin in China
The history of Bitcoin in China is marked by extreme optimism, followed by the government tightening control. BTC China, one of the oldest and most popular Bitcoin exchanges in China, was started in 2011, primarily for miners who were interested in exchanging Bitcoin. But, in May of 2013, CCTV (Central China Television, the state run TV channel) did a special on Bitcoin. So, many people started to think that the government in China was giving its blessing on Bitcoin, and Bitcoin buying started in earnest. However, CCTV did not seek permission from the State for the special TV program. On November 18, 2013, the volume of Bitcoin trading on BTC China skyrocketed, and the price doubled from $500 to over $1,000 for a single Bitcoin. On December 4, the price of a Bitcoin was $1,147. On December 5, 2013, the People’s Bank of China (PBOC) released a memo that said Bitcoin is not a currency; rather, it is a commodity. Moreover, the memo stated that financial institutions cannot hold Bitcoin. The result of the memo was that Baidu and China Telecom stop accepting Bitcoin. Moreover, the price of Bitcoin fell sharply.
The fall of Bitcoin in China
At the start of 2014, the Chinese government continued their negative campaign against Bitcoin. In January of 2014, CCTV broadcasted a documentary filled with dire warnings about risks of holding Bitcoin and warnings about price volatility. Although holding or transferring Bitcoin is legal in China, the government has made it difficult for Chinese people to buy Bitcoin. If you live in China, you cannot wire money into a Bitcoin exchange, since banks in China are denying bank accounts to Bitcoin exchanges. So, it is becoming increasingly difficult to buy and sell Bitcoin in China.
The Chinese government is actively discouraging banks and merchants from dealing in Bitcoin. At one point, there were quite a few merchants on Alibaba’s Taobao (China’s E-Bay) that accepted Bitcoin as payment. However, in January of 2014, Taobao barred the sale of Bitcoin and related products, including mining hardware and software. Now, there is a perception that it is illegal to accept Bitcoin as payment in China. Although technically there is no law against it, the policy of the PBOC is that merchants cannot accept Bitcoin. So, for now, the Chinese government seems to be winning their war against Bitcoin.
Chinese are still crazy about Bitcoin
Nonetheless, the buying of Bitcoin continues in China. Chinese citizens are buying Bitcoin primarily as an investment. It is estimated that less that 500,000 people currently hold Bitcoin in China, and those that do are primarily holding Bitcoin as a speculative investment. Hardly any merchants accept Bitcoin in China, and even if merchants did accept Bitcoin, people do not want to part with their Bitcoins. Besides, transactions fees for debit cards and credit cards in China are very low (less than one percent). The primary reason to buy and hold Bitcoin in China is that it is a commodity that has potential to increase in value. So, despite the Chinese government’s war on Bitcoin, many Chinese citizens still think that Bitcoin is a good investment. With interests rates at an all-time low and with the prices of real estate in China soaring, Bitcoin is an attractive alternative.
Outlook: Bearish on Bitcoin in China
The government in China typically has a lot of success imposing its will on the people, and the government is discouraging ownership and use of Bitcoin. For this reason, I am bearish on Bitcoin in China. The long-term potential for Bitcoin is still positive. However, at the moment, the government in China seems to be winning the battle against Bitcoin.