Bitcoin’s meteoric rise in China began early, back in 2013. In the following years, China became the world’s leading Bitcoin mining hub, dominated the global exchange market, and became a major source of demand for Bitcoin.
A quick look at the charts above clearly shows that between 2016 and 2017, China contributed over 90% to the total global Bitcoin exchange volume. In addition to that, it controlled more than 75% of the total Bitcoin network hash power.
However, towards the end of 2017, China imposed some of the most stringent regulations on crypto trading. As a result, bitcoin exchange volumes dropped significantly but its contribution to Bitcoin network hash power remained strong.
What is happening in 2020?
China shares a very unique relationship with Bitcoin. Despite not formally recognizing Bitcoin trading, China continues to be the world’s leading Bitcoin mining hub. According to an interactive map published by the University of Cambridge’s Alternative Finance Center (CCAF), 65% of the global hash power originates from China in 2020.
Apart from mining, the Bitcoin OTC trade sector is also flourishing in China and some of the multi-billion-dollar crypto companies like Bitmain are Chinese.
The recent weekly LocalBitcoins trade Volume (09/21–09/26) reveals that China contributed 3.68% to the total global trade volume. Interestingly, these trade volumes remained consistent during the period of COVID-19 infused global crises.
A summarized Bitcoin timeline in China
So what is Bitcoin’s official status in China right now?
According to a report published by the Beijing Arbitration Commission (BAC), Bitcoin is not recognized as a currency in China. Thus, China does not allow the usage of Bitcoin at points of sale or Bitcoin ATMs. The BAC states that instead of recognizing Bitcoin as money, the state of China recognizes it as a virtual commodity.
However, the state prohibits financial institutions like banks from supporting the exchange of legal tender and Bitcoin. The BAC reports that Bitcoin’s activities as a virtual commodity might not be considered as an illegal act, even though an eyebrow will be raised when a legal tender comes into the picture. If someone is transacting Bitcoin but this transaction does not involve a recognized currency, the state does not prohibit the transaction.
Sentiments of Chinese Bitcoin users
According to the charts created on the basis of data by jinse.com, the largest blockchain media in China, Bitcoin is the most popular cryptocurrency in the country.
Most of the Chinese Bitcoin traders fall in the age group of 20–29 followed by the age group of 30–39. The data accumulated from the Baidu search engine reveals that the Bitcoin search volumes in China skyrocketed during September 2020, which strongly indicates that China’s interest in Bitcoin is still high.
What is Bitcoin being used for in China?
There are no Bitcoin ATMs in China, no traditional financial institutions touch Bitcoin, and merchants cannot accept Bitcoin. Then why are the Chinese still invested in it?
- Bitcoin treated as a hedge and store of value
In the past 6 months, the Chinese Yuan has weakened substantially. It recently touched a new low since July 2019.
According to a Chainalysis report, during the last year over $50 billion of cryptocurrency moved from China-based digital wallets to other parts of the world. It is quite possible that during the COVID-19 crisis, wealthy mainland Chinese people bought in more Bitcoin as an act of capital flight. While this buy-out was triggered by a falling Yuan devaluation, it also fueled the Bitcoin price. Hence it can be said that Chinese Bitcoin traders are using Bitcoin for hedging during economic crises.
2. Medium to long-term investing
In the past, wealthy Chinese investors have put their money into foreign currencies, gold, and properties to protect their capital. But the Chinese authorities clamped down these activities. In response to this, investors started using Bitcoin as an alternative investment that does not depend on the local government.
News media qz.com quoted an engineer at the Chinese Academy of Sciences in Shanghai who affirms that the Chinese are buying Bitcoin out of a conviction that it will increase in value over time. In the same article, Bobby Lee, founder of the BTC China exchange, shared that the Chinese interest in Bitcoin is not much impacted by politics. So, we can conclude that Chinese Bitcoiners are also using it as a safe instrument to make more money.
3. Home to 4 out of the 5 largest Bitcoin mining pools
China is the undisputed king of Bitcoin mining. There are many factors driving this domination. The most important of them are cheap electricity and excess coal. Recently, the Chinese government excluded Bitcoin mining from the list of restricted activities. Thus, we’re likely to watch the dominance of China in Bitcoin mining in the long run and China won’t want to give it away easily.
Bitcoin is facing harsh competition in the market. The Chinese Center for Information and Industry Development (CCID) evaluated 37 crypto projects and the results suggest that Bitcoin ranking has been slipping down in preference as a concept recently. It is receiving tough competition from Tether, Ethereum, and other crypto projects.
Another strong Bitcoin contender in China is the upcoming digital Yuan. This project has picked pace and the Chinese Ministry of Commerce announced that the digital Yuan’s pilot run will be expanded soon. The ministry also revealed its plans to test the digital Yuan during the 2022 Winter Olympics games.
Bitcoin will still be the king
Bitcoin is much more than just a digital commodity and it is becoming more widely recognized as a currency worldwide. It garnered so much attention because of its borderless and decentralized character. These parameters will always attract users to Bitcoin over the digital Yuan or other less prevalent cryptocurrencies.
Looking at what the leaders of the crypto space in China have to say, it is evident that the people in China are still into Bitcoin and making the most of it. LocalBitcoins is proud of serving Chinese Bitcoiners with a flexible and easy peer-to-peer OTC solution that welcomes both starting and seasoned Bitcoin traders and will continue to be part of the Bitcoin history in China in the years to come!