January 16, 2017
Lately we’ve seen the impact China can have on Bitcoin prices. Just when we were basking in record highs, a bout of volatility hit last week, sending the price down from about $920 to $768 on January 11. Bitcoin prices have since returned to stability. But what happened there?
Market analysts point to Chinese regulatory developments. The People’s Bank of China (PBOC) met with representatives of China’s leading bitcoin exchanges Huobi, BTCC and OKCoin in recent weeks. On January 6 the PBOC announced that it had issued warnings to them. It is investigating potential violations, such as market manipulation and unauthorized financing.
The day of the PBOC’s announcement, Bitcoin prices fell by more than 10% and volatility took hold. Bitcoin surged above $940 on January 8, then plunged again, to $878. Three days later, Bitcoin prices dropped to $752 – more than a 40% drop from the high of $1,153 on January 5.
It is not yet known whether any violations have been found, or what the outcome will be. Nevertheless, as Rik Willard, founder of Agentic Group LLC put it, “Right now, China is calling the shots in bitcoin. When they sneeze, the market catches a cold.”
China is a land of high-volume Bitcoin trading and high demand, which gives it a lot of weight. According to Charles Hayter, CEO of digital currency analytics firm Cryptocompare, trading between the yuan and bitcoin accounted for around 98% of the total market in the past six months.
As to why bitcoin has drawn the Chinese government’s attention, one need only look to the yuan. It lost more than 6.5% against the dollar last year. Some believe the weakening yuan has made bitcoin more attractive to tech-savvy Chinese – especially those keen to hedge against the national currency and bend the rules on how much foreign exchange they are allowed to buy.
Things calmed down on January 12, with prices hovering in the relatively modest $745 to $775 range. As of this writing, the price is on the way up again, currently trading at $833. (Scroll down on our home page to check the current Bitcoin exchange rate.)
Some traders see a net positive. Kong Gao, overseas marketing manager for Richfund, the world’s largest bitcoin hedge fund, is among them. “The creation of regulations will more likely benefit the industry than hamper it”, he said. “We will likely experience a price decline, but bitcoin’s volatility will be reduced. Reduced volatility, combined with a stamp of approval from PBOC with regulation, will likely positively contribute to bitcoin’s adoption in China and elsewhere.”
Hayter concurs: “The long term implications of this are positive as more rigor in the Chinese market only matures and brings respectability to the industry – but in the short term this could affect volumes which have been one of the key drivers of the recent rally”, he told Reuters.