In the New York Times, writer Nathaniel Popper has covered a story about how China has become center stage during a time in bitcoin that some are referencing as a ‘civil war’. In the article are new statistics unveiled by Chainalysis which shows a staggering amount of bitcoin transaction volume originating from China this year.
It’s already been established that China has been a big contributor to the bitcoin economy in many ways. From bitcoin mining farms to bitcoin exchanges, much of the ecosystem comes out of China. The latest bitcoin price run-up a few weeks ago was also attributed to China, quite possibly due to capital flight.
In the Times article, Popper says that Chinese exchanges have accounted for 42% of all bitcoin transactions this year, according to an analysis performed for The New York Times by Chainalysis. The U.S. counts for 23% of transactions this year.
*Mining: bitcoins flowing from companies that “mine” new bitcoins by solving computational problems and offering computing power to the bitcoin network. Mixing services: Services that mix bitcoin transactions together to obscure the source or the transactions, like a money laundering service. Dark markets: bitcoins flowing to black market services that sell illegal goods for bitcoin, inspired by the Silk Road online drug market. Wallets: bitcoins coming to and from online services that hold bitcoin wallets for individuals. Source: Chainalysis, by The New York Times.
As depicted in the illustration from Chainalysis, the bitcoin transacted on the top from China has the most volume, which originates from Chinese exchanges. There aren’t many Chinese exchanges, with a few dominating the market such as BTCC, Huobi, OKCoin, and HaoBTC. Just recently, bitcoin startup Circle received a $60 million investment with plans to open their own Chinese office.
Chainalysis however doesn’t have a purview into over-the-counter (OTC) transactions, which entrepreneur Vinny Lingham stated is where much of the bigger bitcoin transactions from investors happen. He also speculated that much of the current trading on the exchange market is back and forth arbitrage trading, not true demand.
We often see this with Chinese bitcoin exchanges, whose volume is almost always overly inflated, in part due to the zero trading fees which makes them susceptible to bot trading (wash trades) and arbitrage.