The Butterfly Effect of China’s Bitcoin Market Regulation

Over the past few weeks, the Chinese government has implemented strict regulatory measures on all Bitcoin exchanges under its jurisdiction. This, in turn, has caused a significant drop in trading volume on Chinese digital currency exchanges. Some speculate that Chinese Bitcoin traders have now moved the battlefield to more friendly Bitcoin exchanges overseas.

The Chinese government's new regulations on Bitcoin are seen by some as friendly, while others say they severely restrict the Chinese market.

The People's Bank of China's new regulatory policy is reportedly affecting Chinese Bitcoin traders. The policy of stopping margin trading, increasing transaction fees, and suspending Bitcoin withdrawals has caused the Japanese Bitcoin market to surpass China in terms of trading volume and become the world's number one. However, Lin Qi (pseudonym), a Bitcoin trader from China, told China Business News that Bitcoin is currently developing well around the world, so he suggested that holders continue to hold on. To the outside world, the situation seems to be very bad, but to Lin Qi, the People's Bank of China's attitude towards Bitcoin is still friendly.

In addition, Li Qian (pseudonym), a senior practitioner in the Bitcoin industry, told reporters that the transaction rate of Bitcoin in China used to be very high, but now due to regulatory policies, things have changed a lot.

“You should look at the impact of this regulatory storm from both the upstream and downstream directions of the business,” Li explained. “For those players in the upstream direction, such as Bitcoin miners, they will not be affected. Chinese miners will mine as usual. Our electricity and labor costs are always cheap. The ones that are most affected are exchanges. At present, the influence of the Chinese market in the world has declined a lot, especially after the fees, and our transaction rate is now severely limited.”

Japan market takes the first place

Japan has become a big player in the bitcoin economy over the past few months, and according to a staff member at one of China’s top bitcoin exchanges, upcoming regulations in Japan will further encourage bitcoin trading in the country.

“The yen market now adopts a zero-fee policy and has become the new market leader,” a Chinese bitcoin exchange employee told reporters. “Japan seems to be more friendly to digital currencies than other countries. In addition, new regulatory methods will take effect and bitcoin will be a legal payment method.”

In the past few months, a large number of Bitcoin traders have flocked to Japanese Bitcoin exchanges such as Coincheck, Bitflyer and Zaif. In addition, Japan's largest Internet giant GMO Internet Group recently announced that it will enter the digital currency market and build its own exchange and wallet.

What is the future of cryptocurrency in China?

There is also speculation about a reason that could lead the Chinese central bank to more strictly regulate Bitcoin. According to a recent report by Bloomberg, some believe the new policy could be related to the upcoming central bank digital currency. In January 2016, the People's Bank of China detailed a prototype of a central bank digital currency that it was developing, and Bloomberg reported that senior officials such as Fan Yifei, deputy governor of the People's Bank of China, have advocated for the central bank digital currency.

Many people wonder what will happen to the Bitcoin industry after these new regulations are implemented. Li Wei, a researcher at the 21st Century Research Institute, believes that Chinese regulators do not encourage the adoption of Bitcoin, but they will not ban it. Wei believes that Bitcoin technology itself transcends national borders, and in the long run, it will be difficult for national regulators to effectively manage it.