Earlier this week, the People’s Bank of China (PBoC), the Chinese government, and its financial regulators have officially requested local bitcoin exchanges and trading platforms to halt their services by the end of September. OKCoin and Huobi, two largest exchanges in China, were granted leeway to operate until the end of October.
Throughout the past two weeks, amidst anticipation on the nationwide ban on Chinese exchanges, bitcoin price fell from $4,100 to $2,950. But, as soon as the ban was finalized and was announced by state-owned finance news publication Caixin, bitcoin price rebounded from $2,900 to $3,850. Analysts including WhalePanda noted that many traders were looking to buy the dip as bitcoin price dipped below the $3,000 mark.
The vast majority of analysts perceive the major drop in bitcoin price as a result of the nationwide ban on Chinese bitcoin exchanges as an overreaction from traders. China only accounted for around 10 to 13 percent of global bitcoin trades prior to the ban and thus, the ban should really have only affected 10 to 13 percent of traders. Yet, speculators in the US, Japan and South Korea panic sold as rumors surfaced, leading to a major correction on bitcoin price.
Still, prominent bitcoin researchers including Tuur Demeester, long-time bitcoin investor and editor in chief at Adamant Research, explained that in the long-term, the exit of the Chinese bitcoin exchange market could be positive for bitcoin. More to that, he explained that even a nationwide ban on bitcoin itself, or bitcoin transactions, could positively affect the global bitcoin market.
Demeester noted that if the Chinese government decides to censor bitcoin transactions, hashrate will decline and cause slower transactions. He emphasized that it will most likely cause major problems for BitcoinCash because most of its mining activities are conducted by Chinese mining pool operators.
But, Demeester also explained that China’s censorship of bitcoin will also lead to rapid emergence of decentralized exchanges (peer to peer trading platforms), bitcoin mixing tools, tor and satellite nodes, which will drastically improve privacy and security measures for bitcoin users.
In the past two weeks, the Chinese government has banned initial coin offerings (ICOs) and bitcoin trading platforms. Local financial regulators clarified that they do not intend to ban bitcoin as a whole and some analysts in Beijing expect the bitcoin exchange ban to be temporary until the PBoC releases a licensing program for trading platforms.
However, key figures within the cryptocurrency sector that were in China amidst the controversial ICO and bitcoin exchange ban including Simon Dixon revealed the possibility of the Chinese government banning bitcoin as a whole. Although the rumor or the source remain unverified, BnkToTheFuture co-founder and CEO Simon Dixon stated:
(Unverified) report that China is trying to block bitcoin exchanges and p2p network in China by GFW @cnLedger pic.twitter.com/yrrMolWSvw
— Simon Dixon (@SimonDixonTwitt) September 16, 2017
The report remains unverified and unconfirmed by local sources and trusted news publications such as Caixin. But, in consideration of China’s unpredictable nature, it is difficult to dismiss the premise in which the government pursues a general ban on bitcoin itself, as it did in 2013.
There are several analysts that believe the report is true and that a ban on bitcoin transactions could come in effect. While it is hard to imagine how such a policy and regulation would be implemented, the Chinese government’s strong restriction on bitcoin could completely isolate the Chinese market from the global bitcoin industry.
Already, traders have begun to move out of China to Japan and South Korea. Overnight, Japan has become the largest bitcoin exchange market in the world, overtaking the US. China’s ban on bitcoin exchanges will likely allow Japan and Hong Kong to evolve as new powerhouse markets within the global bitcoin market.
Some speculate that if Chinese President Xi Jinping becomes re-elected in November of 2017, President Xi, who is widely known as an avid advocate for free markets, could indirectly encourage local financial regulators to re-enable bitcoin trading and other cryptocurrency-related activities such as ICOs.
As cryptocurrency investor Jon Creasy wrote:
“My prediction is this: as soon as President Xi Jinping is reelected — and he will be — conservative, free(er)-trade legislation will be put in place, and Bitcoin exchanges will be reinstated. In fact, I wouldn’t be surprised to see the Chinese government encouraging certain exchanges and cryptocurrencies, once this legislation hits. NEO already seems to be in their good graces.”
Not only will the ban on bitcoin exchanges strengthen other well regulated markets such as Japan and South Korea, it will also lead to the emergence of more advanced peer to peer bitcoin markets and decentralized trading platforms.