China’s big three exchanges announced they would end zero fee trades and margin trading Tuesday due to increased scrutiny by the People’s Bank of China (PBOC), leading to a collapse in Chinese bitcoin trading volumes. The changes come on the heels of Beijing’s implementation of new capital controls in 2016.
In late January, China’s big three bitcoin exchanges – BTCC, OKCoin, and Huobi – agreed informally to charge 0.2% fees on both sides of bitcoin-denominated trades. Since the announcement of the fees, to be implemented Tuesday, China’s bitcoin volumes have collapsed. Once comprising 99% of bitcoin trades, the market share has collapsed to 33% in one month, according to Bitcoin data website Bitcoinity, compiled by Chris Burniske of Ark Invest.
Below, the drop in terms of Chinese Yuan can be seen:
And in Bitcoin:
Increased Scrutiny by PBOC
The PBOC alleged that Chinese Bitcoin exchanges had operated outside their legal business scope by offering zero fee trading, which fueled speculation in the digital currency market. In a statement, the bank cited “margin trading which violated rules, resulting in abnormal price fluctuations on the market.”
The PBOC inspectors also noted the exchanges had failed to develop anti-money laundering policies and that “preliminary inspections demonstrated that BTCC operates beyond its business scope by offering loans which violate rules.”
PBOC said on January 25, it would pursue further inspections, and that investors should continue heeding possible risks of using the Chinese exchanges and invest carefully.
The 0.2% trading fees go into effect Tuesday in China, according to statements released on BTCC, Huobi and OKCoin websites. The statements highlighted the move would “further curb market manipulation and extreme volatility.”
BTCC Bobby Lee said the move by exchanges to institute trading fees was made in anticipation of future Chinese Bitcoin guidelines.
Chinese Bitcoin Market Evolving
PBOC perlustration hasn’t precluded the development of increasingly sophisticated bitcoin financial products. Hong Kong-based Bitcoin company First Global Credit announced Monday the addition of Chinese stocks backed by Bitcoin as collateral, covering Hong Kong-based companies, as well as 30 mainland China-based companies traded on the Hong Kong Stock Exchange. Further, the PBOC announced it would open a digital currency research institute after the New Year Holiday to test blockchain technology.
In late June 2016, Chainalysis data demonstrated that 42 percent of all Bitcoin transactions took place in China during the first half of last year. In 2017, Bitcoin reached $1,000 on January 1 before consolidating. The price surpassed the four-digit mark once more, amid “dizzying” trading patterns, as the nation celebrated the ‘Day to Welcome the God of Wealth,’ part of Lunar New Year celebrations.
What do you think about the recent events in China and revelations of inflated Chinese trading volumes?
Images courtesy of Shutterstock, Twitter, Chris Burniske, Bitcoinity.
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