Chinese economy

Bitcoin Exchanges Reveal ‘Real’ USD/CNY Rates, Says Bobby Lee

The occasional price spread between Chinese and other bitcoin exchanges can allow users to gain insight into ‘real’ USD/CNY exchange rates over official ones, BTCC CEO and Bitcoin Foundation Board Member Bobby Lee told Bitcoin.com

Also read: Fedspeak: What the Federal Reserve Really Thinks About Bitcoin

‘Real’ CNY/USD Rates Revealed

Since the Chinese yuan (aka renminbi or CNY) is a controlled currency, its value is fixed to the USD at around 6.5 and is not freely traded on markets.

There is, as with other countries under currency controls, a thriving black market in currency exchange, particularly for Chinese wanting to convert CNY into US dollars to send overseas. Black market rates tend to offer a truer indication of a fiat currency’s real value.

But what is that rate, which changes daily? Unless you can obtain a quote from a Chinese street money changer directly, it can be hard to find out. Exchanges like Lee’s BTCC may be an indicator.

Sometimes, for brief periods, a bitcoin price spread exists between CNY-based exchanges and those trading in USD or EUR – with the Chinese price usually higher.

The Kaiko.com CNY Bitcoin Price Index
The Kaiko.com CNY Bitcoin Price Index

“Chinese (CNY) bitcoin prices are in their own market,” said Lee. “There is no flexible, unlimited way to change into or out of the CNY. So arbitrage opportunities are in some sense limited.”

But the divergence in USD and CNY prices, he added, is based on the “official” exchange rate as published by the Chinese government. Those times when the bitcoin price is higher or lower in China, BTC is actually revealing the black market (or “real”) rate.

You see the same phenomenon in Latin America, Lee said, in countries like Argentina. He continued:

By observing the bitcoin price in China, versus the US dollar rate, and you divide it by the so-called official exchange rate, when there’s a fluctuation there you can actually deduce the black market rate.

“For example: let’s say the official rate is 6.5 CNY per US dollar. If you take the (bitcoin exchange) CNY price and divide by 6.5, and it seems to be higher than the price on a USD exchange, that would imply that bitcoin is in shorter supply and people are prepared to pay more CNY for bitcoin than elsewhere,” he added. “And that implies the black market rate is actually higher than 6.5, and the CNY is weaker than its official rate.”

In same cases, bitcoin offers a way for Chinese to move their money out of the country but it isn’t easy. Some people might choose to use bitcoin if other options aren’t available.

“Bitcoin has no limits. You can go in and out all you want. It’s a really fascinating topic,” explained Lee.

Pro traders, Speculators Also Joining In

Bitcoin.com_Bobby Lee
Bobby Lee

BTCC also added a professional trading platform to its list of services last year to serve the pro-market need to hedge positions, speculate on price movements and benefit from arbitrage.

Aimed at ease-of-use, it offers long and short positions, up to 20x leverage, professional trading tools, and charts.

“It’s the first step of a long process,” said Lee. “And while there are a lot of traders on board, many still aren’t aware BTCC offers professional tools.”

Thanks to an “advanced system call” for margin traders, BTCC does not subject its users to “socialized losses,” i.e. when FX exchanges deal with losses incurred by large price movements by forcing all margin traders on the platform to take a haircut.

Should governments be more honest about the value of their fiat currencies? Is Bitcoin really a useful way to make them more accountable?


 

Images courtesy of BTCC