The Stories That Got Us Here
The End of the Chinese Bogeyman
Ever since 2013, China had increasingly taken the lead in the bitcoin markets. The price run-up in November of that year was led by Chinese exchanges, which also dominated trading volume for the years to come.
However, this Chinese dominance could also startle the bitcoin markets from time to time. Rumors that China would “ban” Bitcoin put an end to the bull run in November of 2013 fast. And while those initial news stories were overblown, similar “China bans Bitcoin” rumors have recurred from time to time. They were always proven mostly or completely false, but they almost always scared the markets, causing (temporary) price drops.
Then, this year, the rumors finally held up — at least to a meaningful extent.
In the first weeks of 2017, the Chinese central bank, the People’s Bank of China (PBOC), launched spot checks on several exchanges — not with the intention of banning Bitcoin but of enacting stricter regulation. Most importantly, leveraged trading and zero-fee trading were made illegal, thereby collapsing Chinese trading volume.
The new policy had a negative effect on the markets at first, as BTC dipped from over $1,000 to under $800 halfway through January: the lowest it has been this year. But the price did correct quickly; BTC was trading at $1,000 levels by February.
Then, two major Chinese exchanges — OKcoin and Huobi — announced that bitcoin withdrawals would be suspended for a month by mid-February. While we can only speculate about PBOC involvement, this news wasn’t exactly perceived as positive either. Bitcoin’s exchange rate dipped slightly below $1,000 once again — though this time only by a little, and it recovered within days.
The real shocker followed much later, in the second half of 2017. In early September, the PBOC issued a statement completely banning ICOs (initial coin offerings). Chinese ICO projects seized operations, and funds were returned to investors.
This ban did not affect Bitcoin officially, but when exchange representatives met with Chinese regulators in the days and weeks that followed, all of them announced they would completely halt bitcoin trading. While Bitcoin is still not officially illegal in China, by the end of October all exchanges had either closed shop or moved abroad.
The price of bitcoin seemed to have been significantly affected by this news at first. While it had been closing in on $5,000 by early September, it dropped to almost $3,000 by the middle of that month. However, this dip did not last very long either: the price was back in its upswing within weeks, reaching levels from before the ban as soon as mid-October and breaking new all-time highs of over $6,000 in the weeks that followed.
Perhaps not unlike the bust of Silk Road in 2013, an event that was widely expected to bring bitcoin’s exchange rate down significantly, the news out of China turned out to be not that big of a deal at all. And exactly because the effects weren’t as bad as generally expected, it may have even had a bullish effect on the markets.