Bitcoin has gained a massive amount of popularity since its creation in 2009. The currency that very few people took seriously has become one of the most attractive on the market and China has played a huge part in its growth. The country was responsible for almost 90% of global Bitcoin activity. In 2016, Bitcoin was the world‘s top performing currency as it was the year before that, but 2017 seems to be going differently. It was priced slightly over $1,000 in the first week of January. The cryptocurrency has been on a downward spiral, especially after the People’s Bank of China issued some cautionary statements regarding Bitcoin exchange eliding investors to wonder if China has lost its belief in the power of Bitcoin.

The Rise of Bitcoin

The primary motivation for investors to run to bitcoin is the decreasing value of paper currency. The Yuan has been performing particularly poorly in the last several months, which left investors worried. In 2016, the Yuan dropped 6% against the U.S dollar, which is its lowest since 2008. Sometimes, governments institute measures that weaken the paper currency as has been the case with the Yuan. With the numerous uncertainties in today investment markets, it is understandable why individuals are keeping a closer eye on their money. Bitcoin is untraceable, which allows investors who use online platforms such as CMC Markets to maintain their anonymity. The fact that the cryptocurrency does not have government regulations is another reason for its appeal. Investors don’t have to get anxious every time there are monetary policy changes from the central bank or other regulatory agencies.

It’s Fall

The warning from the PBOC that investors should be cautious of digital currencies triggered a selloff that caused the price to fall about 13% in the second week of January. At the beginning of the year, the PBOC met with leading Chinese bitcoin exchanges and then issued two notices on the currency. The message resonated in these notices was that investors should not view Bitcoin as currency but as a commodity that carries the same risks as every other instrument on the market.

The PBOC saw the need to give out this alert after witnessing the price fluctuations of Bitcoin in the past several weeks. There are speculations that the People’s Bank of China is looking to institute regulations on Bitcoin, thus the warning. There is also the evasion of capital controls, which has always been a major advantage with bitcoin. Rumours are that SAFE, China’s foreign exchange regulator, is checking exchanges that use bitcoin to avoid controls. The involvement of the PBOC has been nagging at investors for some time even with the assurances that it is nothing to fret about.

Road to Recovery

Over the past few weeks, Bitcoin prices have recovered nicely to stand at $1,060. When bitcoin withdrawals from two local exchanges were suspended, investors were a bit wary, but luckily Japan has been there to pick up the slack. The PBOC instructed Huobi and OKCoin, two of China’s largest exchange to revamp their Know Your Customer and Anti-Money Laundering systems and they were not allowed to make transactions for one month.

Japan has surpassed China as the world’s largest bitcoin exchange market. A majority of Chinese traders have moved to Japan to take advantage of the well-regulated platforms as investors use peer-to-peer applications to exchange Bitcoin. This migration has allowed traders to continue with their bitcoin transactions, consequently boosting the value of the currency. Bitcoin exchanges and the Chinese government have also formed an alliance that will look into the regulatory issues plaguing the market and find ways to make investors more confident. This announcement made traders optimistic about the future of bitcoin in China.

Bitcoin investors in China may have had a few shake-ups in 2017, but it looks like things are cooling down. As exchanges work towards providing better services, the price of the cryptocurrency is maintaining a steady upward trend. The sentiment of the People’s Bank of China may have sparked speculations and apprehension about where the cryptocurrency market is heading, but the environment is calmer now. China’s position as a major digital currency player means that any actions on its part cause ripple effects across the sector. The supply and demand of Bitcoin have remained somewhat consistent over the past few weeks, which has contributed to its recovery.

 

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