(Image courtesy of pando.com)
It is a fact which many people are aware of that China plays an important role when Bitcoin is concerned, and it appears the influence of the Asian country is on the rise, if a recent report by Goldman Sachs is anything to go by.
The Goldman Sachs report states that as much as about 80 percent of Bitcoin trades carried out around the world involve the use of the Chinese Yuan. This figure says a lot when you realize that about 19 percent of trades involved the US dollar and just one percent of trades used the euro.
The upward trend in Bitcoin trades is helped by the waning confidence in the economy of the Asian powerhouse and the drop in its currency value, according to the report. Chinese people with inadequate stock trading knowledge and insufficient capital to invest in real estate have also contributed to the rise in trading volume.
China is not just leading in transaction volumes; it is also a top cryptocurrency mining center. Modern, industrial infrastructure and low-cost electricity have contributed to make it easy for mining of the coins to be done in the country. These have helped to make it hard to keep the surge of Bitcoin trading volumes down.
Aware of the potential threat of the rising Bitcoin popularity, People’s Bank of China (POBC) ordered the trading accounts of around 10 cryptocurrency exchanges to be closed by local banks last March. While the step caused a disruption and significant slump in the trade value of Bitcoin around the world, it did not quite succeed in keeping down trading volume in the country. At the time the measure was taken, only about 50 percent of Bitcoin exchange transactions took place in China. The figure has obviously risen significantly since then.
Bitcoin has not exactly impressed in terms of its value storage function due to its known volatility. But the cryptocurrency has performed well in terms of costs of global fund transfers, which are very low compared to other alternatives such as PayPal. Bitcoin exchanges in China such as OKCoin also make things sweeter for users by charging zero transaction fees. As noted in the Goldman Sachs report, even the problem of fluctuations is not a significant one since transactions are carried out in a very fast manner.
The fact that Bitcoin is decentralized makes it a very tough task for China’s central bank to rein the cryptocurrency in. Little wonder then that the last memo from the PBOC was released back in December 2013, instructing banks not to engage in Bitcoin trading.
What the report suggests
Given the volume of Bitcoin trades in the country, China will play a significant role in the fortunes of the cryptocurrency. Persistent slump in the Chinese economy and in the Yuan value will only serve to boost interest in Bitcoin. Another thing is that any action or policy by China’s central bank to discourage the trend will have significant effect on the global value of the cryptocurrency and will impact on the growth of the digital currency.