In the last few months, there is no doubt that many in the Bitcoin investment space are getting weary of the constant threats emanating out of China and the PBOC with relation to Bitcoin regulation. In particular with how Bitcoin exchanges and financial services can operate within China.
In fact whilst many investors obviously want China and the Chinese citizens to participate in the Bitcoin economy, especially due to the high trading volume they bring to the market. They are now looking to the Chinese government to officially state their position regardless of what it is, to try and underline the ambiguity surrounding their regulatory stance.
The goal of this? To end the uncertainty which has plagued the bitcoin price over the last 5 months (which we will look at shortly). This has no doubt played a part in frightening away the weaker hands which helped fuel Bitcoin’s $1000+ move back in November 2013.
Whilst there is no definitive answer or evidence as to why there has been so much ambiguity and uncertainty regarding China’s official stance on Bitcoin regulation. Possibilities discussed range from a lack of understanding on the part of regulators grappling with this new technology, to deliberate manipulation in order to lower the bitcoin price.
So what has been the effect of the announcements on the bitcoin price? And should current or potential investors really fear the regulatory stance of China?
The effect of the announcements:
The following charts show the price drop following Chinese regulatory announcements/rhetoric from the beginning of the announcement to the end of the short term down trend.
Dec 5th: Peoples bank of China Starts rhetoric on restricting financial institutions from handling Bitcoin, issues statement Baidu and China Telecom stop accepting Bitcoin
Price drops $1130 to $540 – 52% drop.
Dec 16th: China’s payment processors told not to deal with Bitcoin.
Price drops $857 to $381 – 55% drop.
Mar 28th: Rumours of new China bank restrictions.
Price drops $570- $339 – 40% drop.
April 25 2013: – PBOC further restrictions Bitcoin exchanges, restricting Bitcoin transactions through rechargeable funding codes.
Price drops $500 – $438 – 12.5% drop (currently)
Whilst you have to take into account other factors such as profit taking, technical weakness, momentum trading and the Mt.Gox affair over this 6 month consolidation period. It is clear that these Chinese announcements have had a profound effect upon the drop in the bitcoin price.
But looking at the summary, the effect of these announcements appears to be diminishing as bitcoins move into stronger hands and new investors enter the market looking for bitcoins that are potentially offering a discount under fair market value.
The Bigger picture:
For people currently invested or looking to invest in bitcoin, it is important to remember that Bitcoin is a lot bigger than any one country, even if that country is one of the biggest players on the world stage.
It could and has been argued that Bitcoin is one of the biggest and most important technological innovations in human history and the likelihood of it going away anytime soon, could be conceived as being very low. Whilst bitcoin remains a speculative high risk investment in the near term, it is worth bearing this in mind.
In addition to this, regardless of China, there are approx 200 sovereign states in the world not all of which are taking such a hard stance towards Bitcoin regulation.
These states cumulatively have tens of trillions in wealth currently located in stock markets, pensions, savings accounts, bonds, forex and commodities. Not to mention the wealth in offshore accounts that some estimate to be around $21 trillion.
If even a small percentage of this money makes its way into the Bitcoin market, it is not difficult to conceive a bitcoin price many multiples of its current $5-6 billion market cap.
It is also worth remembering that bitcoin is a global currency. As such, the opportunity for regulatory arbitrage ensures that there will always likely be a state that recognises the value of Bitcoin and are open and willing to cooperate with Bitcoin entrepreneurs, exchanges and start-ups to help build a robust Bitcoin economy. Evidence of this is the growing amount of Venture capital (VC) moving into the Bitcoin space, which is estimated to total approx $500 million by the end of 2014. A number almost in line with the rate of VC the internet attracted during its early stages.
It is these states that will likely force the hand of the more reluctant states in the long term, as they enjoy the competitive advantage that comes from a growing Bitcoin economy that benefits from the use of an efficient, low cost, frictionless transaction network.
Whilst it is likely beneficial to take note of any regulatory moves from individual states that affect the bitcoin price, when making an investment decision to enter of leave the market. It is always worth bearing in mind the bigger picture of Bitcoin as a whole and why the underlying fundamentals perhaps offer an opportunity much greater than can be affected by any individual state.