All it takes is for China to draft a minimal reaction and the price of the bitcoin moves – at least in the short term. This has been a key note over the past few years and especially months. Late last year, a friendly statement by the Chinese President Xi Jinping made the bitcoin have the highest daily appreciation in the year. And in other situations involving local politics or regulation the same has occurred.
“There is a very large demand in China for the exchange of bitcoins for foreign currencies and, on the other way around, exchange bitcoins for the local currency. Only if this stablecoin has international liquidity there can be some negative impact on demand”.
But why is the price of the bitcoin so sensitive to what’s going on in the Chinese scene? For Transfero Swiss AG’s Head of Investments, Carlos Russo, these movements are signs of the market expectations regarding a liberalization of the Chinese market in the cryptocurrencies area.
“A possible liberalization of the cryptocurrency market could rather generate a positive impact on the demand for this type of asset. However, measures in this regard are unlikely in the short and medium term”, says the executive.
Especially greater importance in cryptocurrencies area
It is worth remembering that China is one of the main economies in the world. Therefore, everything that concerns the country has global impacts, not only in the cryptocurrencies area. But in this sector of the economy, the importance is especially greater because China holds almost all hardware manufacturing for bitcoin mining. In addition, the country has long been the world’s main mining point.
Another issue that makes the bitcoin especially important in the country is the possibility that it gives the Chinese citizen not to be held hostage by the yuan. “In China you have capital control, so the bitcoin is an alternative to diversification and asset protection”, says ABCrypto CEO, Safiri Félix.
The launch of a Chinese sovereign stablecoin, which has already been announced by the country, should not change this scenario of impact on the bitcoin price with each advance or retreat of the country regading the cryptocurrencies. “There is a very large demand in China for the exchange of bitcoins for foreign currencies and, on the other way around, exchange bitcoins for the local currency. Only if this stablecoin has international liquidity there can be some negative impact on demand”, says the Transfero executive.
For the director of ABCripto, the impact of creating a Chinese digital currency would have a marginal impact on bitcoin. “The fact that this currency should be a centralized instrument controlled by China’s monetary authority already differentiates it completely from the bitcoin ethos”, Félix says. The positive side, in this case, is the greatest number of people interacting with the cryptocurrency technology.
“In China you have capital control, so the bitcoin is an alternative to diversification and asset protection”.
China’s advances and setbacks with cryptocurrencies
December 5, 2013
News began circulating that China had banned financial institutions from dealing with bitcoin transactions. The price fell 20%, from well over US$ 1,100 to just over US$ 900 in a matter of hours.
Later that month, the Central Bank of China ordered domestic banks to close bitcoin trading accounts. The price of the bitcoin fell 8% the following week, the Wall Street Journal reported.
Earlier that month, the ICOs were banned in the country and began spreading news that the government planned to close crypto exchanges. On September 15 of that year, one of the largest exchanges announced the end of operations in the country. The price of bitcoin (which was already falling, perhaps in response to the ban on ICOs) fell by more than 20% – but in the following months it rose to reach its highest levels.
Earlier that year, news circulated that China would ban bitcoin mining, which ended up not being confirmed – but the price fell after news began spreading globally, with a loss of nearly 25% of the value four days later.
The price of the bitcoin and research on the Baidu social network skyrocketed after the Chinese president’s favorable comments to the blockchain technology. Later on, prices fell after rumors that Binance would close its Shanghai office – but the company had not had an office in the city for two years.