Are Bitcoins slowly gaining wide acceptance in China?

Bloomberg News Online and Techcrunch.com reported on November 19, 2013 that a major Chinese startup, called BTC China, and was said to be the oldest Bitcoin exchange in China, received a major boost to their venture funding efforts through a USD 5.0 million Series A equity injection from institutional investors Lightspeed China Partners and Lightspeed Venture Partners. BTC China (https://vip.btcchina.com) was founded by three Chinese entrepreneurs, Mr. Bobby Lee, Mr. Linke Yang, and Mr. Xiaoyu Huang.

To readers who might not know or understand what Bitcoins are? Here are some online references one might be keen to explore: According to Wikipedia.org, Bitcoin is a distributed, peer-to-peer virtual currency that functions without intermediation of of any central authority. The concept was introduced in 2008 paper by a computer researcher known as ‘Satoshi Nakamoto’. There is also another form of explanation, but is through a mathematical method of describing what Bitcoins are, and was published in a recent Chicago Federal Reserve Bank paper by a researcher named, Mr. Francois R. Velde. In his paper, he described a bitcoin as “a string of zeros and ones (binary numbers)” stored in a computer file known after its molecular-world analog as a “wallet”. The story is also being published in a recent online Futures Magazine article on November 13, 2013.

The question over the significance of Bitcoins gaining wider acceptance among the Chinese people is something to watch for as China starts to embark on gradual financial liberalisation efforts as part of the reform agenda outlined in the recent policy statement, following the conclusion of the Third Plenum Meetings last week. Bloomberg News reported during its early morning show, ‘First Up’ on November 19, 2013, that with the funding received from the venture capitalists, the value of Bitcoins traded on the exchange run by BTC China shot up to approximately USD 800.00 to USD 900.00 per unit, up from the previous day levels of approximately USD 500.00 to USD 600.00 levels. Other prominent Bitcoin exchanges including Japan’s MtGox, and Europe’s Bitstamp are also reporting similar levels in the value of Bitcoins.

With all these hype over the value of Bitcoins in China, and elsewhere, it appears that the trading of Bitcoins is entering into an unchartered territory where buyers and sellers are also unaware exactly what the fair value of a Bitcoin is, other that piling into the market in anticipation that there are profit opportunities to be made. This has prompted a US Congressional investigation starting this week to probe into whether there are possible illicit activities associated with the trading of Bitcoins, including cases of money laudering, illegal drug trafficking, among others. US lawmakers are questioning regulators from the Commodities and Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to look into the potential lack of regulatory controls over Bitcoins. The SEC is currently been tasked to examine the various regulatory and potential criminal activities that might arise from the lack of regulatory controls on the exchange of Bitcoins.

Setting aside temporary on the regulatory issues regarding the use of Bitcoins in the United States, China, on the other hand, is seen to be a potential market place where the use of Bitcoins is generally been seen as a widely accepted form of the so called ‘virtual currency’. It was reported by Techcrunch.com that prominent Chinese internet portals like Baidu.com (BIDU) has started to accept Bitcoin payments for online security and firewall services since October 2013. It was reported that is an influx of Chinese investors that has helped to drive up the value of Bitcoin to dizzying highs, and that has prompted many to warn of a potential ‘Bitcoin Bubble’ emerging in the country. However all these frenzy over Bitcoins has not resulted in major crashes yet, as shown by the 90,000 over Bitcoins traded through BTC China, with more than Chinese Yuan 200.0 million worth of daily transactions, surpassing levels unseen before in China. Techcrunch.com also reported that during an event organised by the entity in Europe last month, one of the speakers by the name of Mr. Sharil Khan, commented that, “the local state media has been showing a number of short education programs designed to educate the Chinese people on Bitcoins, and how the virtual currency is being used as a form of alternative currency.” The education process by the Chinese government is certainly the first that anyone has known of, given that lawmakers and regulators in the United States are clamping down hard on Bitcoin’s acceptance and distribution on its soil, and those coming from outside of the country.

The growing popularity in Bitcoins has certainly took on a new twist in China, following the latest venture funding of BTC China, and how China is starting to promote its usage in the country. However, there is still a degree of caution to be exercised when using Bitcoins in China, and in general, the Asia-Pacific region. Although things seem to be running smoothly with the use of Bitcoins in China, but if the United States were to enforce its rules on Bitcoin trading elsewhere, China might be singled out as one of the countries that has not been doing enough to regulate Bitcoin trading. There could be potential impositions of fines and levies on individuals who are using Bitcoins as forms of illicit trades. On a diplomatic level, this could also result in restrictions and/or penalties for the country. However, with the sensitivity in bilateral relationships between both the United States and China, it is highly remote that punitive sanctions will be imposed, given that China is still the second largest global economy, and sanctions and duties imposed by foreign governments, including the United States are not likely to take hold. Both countries will want to avoid conflicts, and further imposition of sanctions could ignite greater tension among Sino-US ties.

The frenzy over Bitcoin rules on for now. Unless the United States government weighed in over the worldwide usage of Bitcoins as an alternative medium of exchange, the application of the digital currency as an acceptable form of settlement transactions is expected to stay on for now, especially in China, where Chinese investors are always for a lookout for profit opportunities to be exploited.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

2 thoughts on “Are Bitcoins slowly gaining wide acceptance in China?

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  2. The distribution and popularity of bitcoins have more or less gain a foothold in China, and possibly in the Asia-Pacific region. Countries have ballooned their budget balances, and ever so, printing more ‘cash’, save large corporations from imminent collapse, intervening the free market exchange mechanism, creating artificial asset ‘bubbles’ as a consequence. These issues are not entirely new, but to delay the suffering further will result in other forms of currencies, such as Bitcoins to contain the ever so increased monetary stimulus efforts. Even Mr. Ben Bernanke, Chairman of the US Federal Reserve, was quoted in several news outlets that he does see Bitcoins as providing an alternative means of currency exchange, though he restrain himself from endorsing it. So, a lot of debates on Bitcoins, but will it exist in its current form is still a debatable topic, especially with the regulatory uncertainties surrounding the use of Bitcoins.

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