Pan Gongsheng, a deputy governor of the People’s Bank of China, told Sina in an interview that he believes Bitcoin will decline in the long-term.
“As Keynes has taught us, ‘the market can remain irrational longer than you can remain solvent.’ There is only one thing left to do: Sit by the river bank and see Bitcoin’s body pass by one day.”
He further emphasized that the PBoC and local Chinese authorities have made the right decision to suspend cryptocurrency trading. Gongsheng stated:
“If we had not shut down Bitcoin exchanges and cracked down on ICOs several months ago, if China still accounted for more than 80% of the world’s Bitcoin trading and ICO fundraising…what would happen today? Thinking of this question makes me scared.”
China market was never that big
China’s 90 percent global Bitcoin market share figure mentioned by Gongsheng was refuted by many analysts, investors, and researchers in the cryptocurrency sector as early as last year. For many years the Chinese Bitcoin exchange market and trading platforms within used a zero-fee trading system. All trades were completely free, with no fees at all.
A crucial issue with zero-fee exchanges is their vulnerability to bot and wash trading, which can lead to large inflated volumes. Hence, the actual trading volume of a market with zero-fee exchanges is likely to be a fraction of what it seems.
In December of 2016, the PBoC requested all Chinese trading platforms and exchanges to eliminate zero-fee trading. Almost immediately, the supposed 90 percent Bitcoin exchange market share of the Chinese market sharply dropped to seven percent. China was never the largest Bitcoin market, but rather the fifth largest market behind Japan, the US, South Korea and Europe.
Moreover, if China had accounted for a major portion of the global Bitcoin exchange market, its crackdown on cryptocurrency trading would have had a bigger impact on the price of Bitcoin. However, since China’s ban on cryptocurrency trading, Bitcoin has increased in value from $5,000 to $11,665.
Bitcoin demand in China is increasing
As Leonhard Weese, the founder of Bitcoin Association of HK and tech-columnist noted, China’s leading cryptocurrency exchanges migrated to the Hong Kong Bitcoin market after the Chinese government’s crackdown on cryptocurrency exchanges.
Weese revealed that Huobi, OKCoin, BTCC (which operate as Huobi Pro) and OKEx now account for seven percent of global Bitcoin trades. In China, investors are purchasing Bitcoin with a high premium of around eight percent. Weese explained that most investors utilize offshore banking accounts to trade in Hong Kong:
“In Hong Kong, four dedicated OTC trading desks, Gatecoin, Octagon Strategy, Circle Trading and Genesis Block now compete for orders that can range between 1 and 10,000 BTC.”