This article is as much for my own edification as anyone. I only report what I hear and whatever the Bitcoin market is doing in China is definitely third-hand, at best. The great part about my job is that I can learn about the digital currency I love while sharing this knowledge with the world because knowledge is power. Today, it is time to share some power. China is not the center of Bitcoin’s universe, as I and many of you have been led to believe.
The stats are readily available only from Coinhills and other sources. About 95% of the world’s fiat exchanges into Bitcoin are from the Chinese Yuan/Renminbi, and about 80% of all the trades are done in China, and the three major Bitcoin exchanges do well over 98% of the volume in global Bitcoin trading. If you know this much, as I did, you only know the what the house of Bitcoin looks like, not how it was built, or how it is financed. Meet Neil Woodfine, who will teach us the rest of the Bitcoin in China story.
See, Neil is the Cheif Operating Officer of Remitsy and he runs bitcoin meetups in Beijing, China on a regular basis. He has his “boots on the ground” in what has become the most active Bitcoin trading location in the world, and he reports in his blog post that activity in China when it comes to Bitcoin is not what it may seem. It is far more manipulated and far less ubiquitous as you may think, looking from the outside in, just reviewing the data from a chart on a website.
His take is part one of a three-part series from China, covering Bitcoin’s exchange market as he sees it. So please check out his piece and the links he provides to more information if you want a more complete education on this very influential Bitcoin market. Here I will summarize his first edition. I’ll touch on three key concepts to China’s influence, or lack thereof.
Firstly, the Chinese exchanges do not charge a transaction fee, which creates many intended and unintended consequences. Woodfine alleges that the sheer competition in this market has forced the companies to do away with any fees, but this ability to trade freely when most exchanges charge 0.2-1% is a false narrative when it comes to volume. Neil explains how this trading changes the market’s dynamics, which he calls "trading spam," or "fake trades," a la “fake news”.
So the exchanges seem much more powerful and popular in trade volume than in reality. In other words, many people set up two accounts, trade their one Bitcoin between the two accounts, drive up their trade volume, then withdraw their actual funds at the lowest exchange rate possible. And this is not just the average trader doing this, but the exchanges themselves engage in this fake trading practice, at much higher volumes than you or I could generate. This increased volume and liquidity attracts more buyers to each exchange, so it is effectively gaming the system.
Woodbine figures that, without hard numbers that would not be disclosed by the exchanges or the traders, that the legitimate trade volume is about half of what is commonly reported, so more like 40-50% of the global trading market. Still the major player, but 90+% is a major over-exaggeration.
This also doesn’t take into account the OTC (Over The Counter) market that also uses these exchanges from other countries, so it is also certainly not a 90% Chinese investor driven industry, either. There are plenty of savvy investors elsewhere who are using their low-cost system to make far better returns on digital commodity trading than the 7-8% Gold brought last year. When your currency value jumps over 125% in a year, the world will move in on your system, not just one country. Neil further explains:
So please use the link above, or look up Neil Woodfine of Twitter, for more details on his findings and future posts on this subject. He seems like a solid resource, being immersed in the Chinese Bitcoin market and being able to convey, in English, what is really going on. Those who do not trade in Bitcoin because they think China and its government have too much control seem to have been misled.
The digital currency revolution will not be centralized.