Why the Bitcoin World Needs to Pay Attention to China — NOW

Happy Year of the Monkey!

As the Year of the Monkey begins, it’s important to remind everyone just how important China is to the bitcoin ecosystem.

Not only is it the country where most new bitcoins are produced, it’s probably also where the price is made. For years now we’ve seen bitcoin rise and fall on news coming from mainland China, sometimes dramatically.

The news that can send bitcoin either soaring or crashing may be a big policy announcement from the Chinese government — or it could just as easily be a rumor circulated on a Chinese social network like QQ, Weibo or WeChat.

It’s essential for anyone who wants to understand bitcoin to also understand China, and watch what goes on there closely.

Looking for the commerce boom

The irony is that, while China dominates mining and trading activity, actual bitcoin commerce is quite low. There are few of the bars, restaurants and small businesses accepting bitcoin that have become common in the US and elsewhere.

How long will that last? Bitcoin seems primed for adoption in an economy like China’s, where millions of people would like better access to banking and financial services, and are looking for better deposit and investment options.

Companies like Bitbank and HaoBTC are beginning to offer those services, and in bitcoin. Those looking for green shoots of bitcoin adoption should be keeping a close eye on those and similar startups.

Mining power

It’s a well-known fact that much of the world’s mining activity is based in mainland China.

Four of those five largest mining pools are operated from China, and/or from Chinese companies. They are F2Pool (aka Discus Fish), Antpool by Bitmain, BTCC Pool by BTCC, and BW.com.

At the time of writing, those pools had mined 72.73% of all new bitcoins in the past 24 hours:

Occasionally you see a photo report from a large scale bitcoin mining operation, usually located in a remote town where electricity is cheap and readily available. It’s almost odd to think these places are driving a worldwide financial and economic revolution.

And yet the world outside China sees very little of the people involved. Most in the international bitcoin industry could not recall a list of prominent names.

This was obvious to anyone who attended the Scaling Bitcoin conference (as the Kaiko team did) in Hong Kong last December. As bitcoin struggles with growing pains over the block size issue, the people who ultimately decide the way forward were all there on stage together — and few outside China knew who they were.

Trading power

Just as well-known is the fact that most trading activity happens in China as well, or on China-based trading platforms.

There’s OKCoin and Huobi, BTCC and LakeBTC, plus many more. Outside the mainland there’s Bitfinex, Gatecoin, BitMEX, BitBays and ANX, and Maicoin.

Whatever the reasons, the difference between CNY trading volumes and USD or EUR is enormous:

Free of the strict regulations facing bitcoin companies in the US and Europe, China-based exchanges offer a range of exotic products and features to tempt hardcore traders. These include 50x leverage or higher, bitcoin derivatives, lending with interest, and high frequency trading.

Kaiko’s Bitcoin Price Index also has a separate index for bitcoin’s three major currencies: CNY, USD and EUR. It’s interesting to note that the CNY index usually runs a few dollars higher (in value) than the USD one.

The light blue line on this chart represents CNY, the darker one USD:

It’s often been this way in the past, too. When bitcoin made its first serious bull run in April 2013, the highest-price record wasn’t set by Mt Gox — it was at BTCC (then BTC China), where it topped the equivalent of USD$300. It went mostly unnoticed, though, as most eyes stayed on Mt Gox and the dollar traders.

Reaching out

Chinese companies we’ve spoken to have expressed a desire to project beyond their home country and target customers in the rest of the world. They’re starting to do this, with most companies mentioned in this article providing English language interfaces.

There’s no good reason to doubt people in other countries will someday seek out bitcoin-based financial services provided by Chinese companies. Bitcoiners from elsewhere have already headed into China looking for industry jobs.

Most of the world, and indeed most of its largest economies including the US, China and Europe, are heading into the new year with a degree of nervousness about their financial futures.

Bitcoin promises something new, a new kind of finance, and greater economic freedom for all. It doesn’t respect borders like other currencies, and it works the same everywhere no matter what the law.

The monkey in Chinese culture usually symbolizes cleverness — but also curiosity and mischievousness. These traits have served the bitcoin well so far too.

It could be a very good year…

9 February 2016