Headlines like “China bans bitcoin deposits” are short, catchy, and in the spirit of financial news, try to pin a market move down to a single anecdotal factor.
To summarize the FT article, this is probably just the second in a series of steps China will take on Bitcoin regulation, the two so being, based on my quick read:
- The People’s Bank of China (PBOC) does not recognize Bitcoin as a currency, and so prohibits Chinese banks from transacting in it. (Mention on the SCMP clip post here), and
- It is now forbidden to deposit Chinese yuan renminbi (RMB) cash onto BTC exchanges, in what seemed like an attempt to curb the flow of RMB out of China into Bitcoin, a trend shown by the dominance of China on the FiatLeak map last month.
The second one is more clearly a latest example of China currency controls, similar to the ones that exist on RMB on China’s capital account as opposed to its current account. China has a whole alphabet soup of regulations for getting money in and out of China depending on the purpose, including QFII (for foreigners to convert US dollars to buy onshore A-shares), QDII (for Chinese to convert RMB to foreign currency to buy foreign shares), RQFII (mostly for HK funds to use offshore RMB to buy onshore bonds) to name a few.
Until yesterday I was looking at Bitcoin as one of the easiest ways I might move money into China: buy Bitcoin in Hong Kong, transfer to BTCChina and sell there, likely at a premium, and viola, I would have transferred money into China at what would have effectively been a negative transaction fee. Even though buses all over Hong Kong advertise how each bank here has been getting so good at offering different RMB services, I have yet to find a service as simple and cost-effective as what Bitcoin technology would have enables.
Earlier today, Hong Kong’s main Bitcoin exchange ANX posted one of the greatest price swings from HK$5,459 to HK$1,694 before quickly recovering to HK$3,800, an intraday swing of over 69% which is wild even by Bitcoin standards. This example tells me that even on a top exchange closely connected to what is going on in China, there is plenty of room for profit in simple market making for investors with capital to provide liquidity and stability to Bitcoin.
My guess is that these regulations are going to continue coming in steps, and that accumulation of Bitcoin in China will, perhaps not surprisingly, come from trade when Chinese sell goods that foreigners want accepting Bitcoin rather than dollars or Euros as payment. This is probably more in line with what Beijing wants: China to maintain its trade surpluses and add to its problem of too much money in yet another currency, this time a virtual one.