All your bitcoin are belong to China

9 January 2017 By Pete Sweeney Follow @petesweeneypro

Beijing has cracked down on people converting yuan to dollars, but seems relatively relaxed about them piling into the virtual currency. That’s probably because the bitcoin market is tiny, volatile, and dominated by local speculators: an unreliable channel for capital outflows.

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Bitcoin, the virtual currency, rallied 124 percent in 2016 to nearly $1,000 per coin. Market operators say demonetisation programmes in India and Venezuela, and the falling Chinese yuan, helped drive increasing demand.

Volumes on Chinese bitcoin exchanges began soaring in October, and peaked in the first weeks of January. Many exchanges offered free transactions to lure new customers.

Yuan-bitcoin trading volumes hit 449 billion yuan in the week ended Jan. 2, according to bitcoinity.org. Monthly volume was 989 billion yuan ($143 billion) in December, compared to $1.1 billion traded in dollar exchanges. Three Chinese exchanges now handle about 97 percent of global transactions.

Bitcoin plunged by as much as 12 percent on Jan. 6 after China's central bank urged investors to take a "rational" and "cautious" approach to the digital currency.

The total market capitalization of bitcoin remains tiny, peaking at around $18 billion on Jan. 5.

China's foreign exchange reserves fell nearly $320 billion to $3.011 trillion in 2016, after a record drop in 2015. Some analysts estimate China needs a minimum of $2.6 trillion to $2.8 trillion under International Monetary Fund adequacy measures.

Research by Kathy Gao

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