Why Bitcoin Traders are Moving From China to Japan; Better Regulations

It has been less than two weeks since the nationwide ban on Chinese bitcoin exchange ban was finalized and already, bitcoin traders in the Chinese market are already moving to Japan.

OKCoin and Huobi, two of the largest bitcoin exchanges in China that have been responsible for around 75 percent of bitcoin trades in the Chinese market, were given leeway by local financial regulators to operate until the end of October. That means, Chinese traders have at least a month to close their accounts, move their funds and search for other ways to trade bitcoin.

But, almost immediately after leading bitcoin exchanges in China announced their plans to halt their operations in the upcoming weeks, Chinese traders migrated to neighboring markets in Asia: Japan and South Korea.

Prior to the imposition of a nationwide ban on Chinese exchanges, the Chinese bitcoin exchange market accounted for around 10 to 13 percent of global bitcoin trades. At the time of reporting, South Korea has overtaken the Chinese market in terms of bitcoin trading volume, becoming the third largest bitcoin exchange market in the world and evolving into a powerhouse within the global cryptocurrency sector.

Today, the Chinese bitcoin exchange market accounts for less than 5 percent of global bitcoin trades and in four weeks time, China’s bitcoin exchange market will have no trading activity at all.

Despite the short-term impact of China’s crackdown on bitcoin exchanges, many experts including billionaire early-stage investor Tim Draper have viewed the exit of the Chinese market from the global bitcoin exchange market as a positive event, mostly because the Chinese government does not have any leverage to work with to potentially manipulate the bitcoin market or lower the value and the market cap of bitcoin.

Essentially, the Chinese government has used the last card in the deck in imposing a nationwide ban on bitcoin trading platforms and it has finally run out of leverage against the global bitcoin market. That provides a positive precedent and future for bitcoin price development and long-term health of the bitcoin market. In months ahead, the bitcoin market will demonstrate increased stability and distribution. As Draper noted:

“The deadwood of the Bitcoin ecosystem is leaving now. Our faith in the crypto economy will be well rewarded.”

More importantly, it is beneficial for the long-term health of the global bitcoin market that trading volumes from China are moving to Japan and South Korea, two countries that have the most practical and efficient regulatory frameworks for both bitcoin investors and businesses. Earlier this year, the Japanese government fully eliminated double taxation on bitcoin and legalized bitcoin as a payment method. Deloitte’s annual tax report read:

“The supply of virtual currency will be exempt from Japanese Consumption Tax (“JCT”). Currently, virtual currencies such as Bitcoin do not fall under the category of exempt sales, and as a result, the sale of virtual currencies in Japan have been treated as taxable for JCT purposes. Following the enactment of the amended Fund Settlement Law in May 2016, which newly defined “virtual currency” as a means of settlement, the sale of virtual currency as defined under the new Fund Settlement Law will be exempt from JCT. This change will apply to sales/purchase transactions performed in Japan on or after 1 July 2017.”

Consequently, large-scale multi-billion dollar technology and financial conglomerates have emerged in the Japanese bitcoin exchange market and industry. GMO, a major Japanese technology company, has already launched a trading platform for institutional investor and established a manufacturing line to create bitcoin ASIC miners and other mining equipment.

In the upcoming months, an increasing number of institutional investors and retail traders in Japan and South Korea will drive the price of bitcoin to all-time highs. Bitcoin trading volumes and market cap will likely be high than ever before, all due to the swift recovery of the global bitcoin market and the exit of an unstable bitcoin exchange market.

Joseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.