Find Out The Answer To The Question Are Bitcoin And Crypto Prices Totally Dependent On China?

The Cryptocurrency Ecosystem In China

While banning initial coin offerings the government there has directed state officials to conduct an orderly removal of Bitcoin miners from their territories. In such a case is the price of cryptocurrencies dependent on China? While this may seem like an odd question, the facts stated earlier typical analysis would make it seem that China is weaning its economy off cryptocurrencies. Whereas the appearances are not always as they seem, China still exerts a significant influence on cryptocurrency prices.

A Relationship That Turned Sour? 

Firstly looking into a little bit of history about cryptocurrencies in China, the country saw a complicated relationship with them. This happened quite before the government’s volte-face in the year 2017, as they were amongst the earliest countries to enthusiastically embrace cryptocurrencies back in 2013 as the Chinese charity began accepting Bitcoin. Following this was a wave of businesses accepting cryptocurrencies as even Baidu the search engine giant in China began accepting Bitcoin for website security services. This is where miners set up shop immediately afterward. 

Subsequently bitcoin’s politics aside these Chinese investors are enamored with cryptocurrencies and their ability to transcend borders. An engineer at the Chinese Academy of Sciences in Shanghai is quoted saying that the Chinese buy Bitcoin as it will increase in value and is a hedge against inflation which is an added attraction that is free from governmental control.

In this context, the relevant fact remains that returns from conventional state-backed investments have dwindled with rich Chinese reportedly hunting for investment opportunities abroad and exchanging local currency for US dollars. This comes in response to where the government has instituted capital controls preventing Yuan outflow and a subsequent drop in its value. This then implies Bitcoin and other cryptocurrencies offer protection against a slowing economy and capital controls at home.

Ban? What Ban? 

Since the ban, the exchanges have changed their business model and begun servicing customers abroad. While the OKCoin regularly clocks the highest trading volume for Bitcoin, it is now registered in Belize though most of the staff is still based in China. The fact is that it offers consumer-to-consumer trading of digital currencies against legal tenders of many countries and in simple words, it means it accepts foreign currencies for Bitcoin trading on the exchange that charges relatively low fees is an added attraction.

It is observed that cumulatively Chinese exchanges account for the largest trading volumes whereas an example is according to Coinhills as its tracking trading volumes, exchanges based in china which had accounted for approximately 29% as of the overall trading volumes in cryptocurrencies during this past weekend. This is where peer-to-peer marketplaces such as LocalBitcoins have also become popular with Chinese investors. As it is allowing investments of up to $ 100,000 which comes as a measure of the popularity of Bitcoin in china at the 8% price premium that the Chinese had paid for the Bitcoin in the following months for the ban. 

Bitcoin Mining Operations

It is a known fact that supply plays a significant role in determining a currency’s price as, within the cryptocurrency ecosystem, china controls the supply for prominent cryptocurrencies through mining operations. This is approximately two-thirds of all Bitcoin mining operations based in China. While they were considered responsible for 39% of all the mining operations, the Bitmain runs the world’s two largest mining pools which is a Chinese company with operations spreading far beyond its borders including to places like the US and Switzerland. Whereas by now it has pioneered the ASIC chip running most Bitcoin mining systems referred to as the most influential company in the Bitcoin ecosystem by some. 

By now as the Bitcoin supply is tightly controlled, there are Bitcoin mining playing an important role in determining the cryptocurrencies prices and the miners calibrate their coin production and demand thereby adjusting the problem difficulty as well as the transaction fees. This is why even though there has been much outcry about bitcoin’s energy consumption, Chinese miners are still making a tidy profit due to high prices. It is then argued that this might be the reason why the government has not set a deadline for the removal of Bitcoin mines. 

The influence of China in mining spreads to other cryptocurrencies as well. There is an example considering the battle over Siacoin belonging to Sia, a Boston- based platform enabling content distribution over the network with the founder was recently on Reddit while he was expressing concern over Bitmain’s decision to develop those ASIC machines supporting the algorithm being run by Sia. 

This is not just the end of the story as the Chinese company Halong Mining is competing with Bitmain to develop a machine supporting Siacoin’s algorithm with the net effect that the coin's supply may be decentralized and controlled by a Chinese company. 

The Bottom Line  

This is where China plays a major role in the cryptocurrency ecosystem with several levers through which it controls pricing for cryptocurrencies even as it might seem that it is cracking down on them with levers useful and when it begins regulating cryptocurrencies.