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Last updated: November 22, 2013 3:03 pm
Such has been the explosive growth of Bitcoin in China that the country’s biggest exchange for the digital currency had its logo scrawled on its front entrance in magic marker until this week.
With about $60m in daily transactions, BTCChina is, as of early this month, also the world’s biggest Bitcoin exchange, accounting for nearly one-third of the global market. Not bad for a company that was officially registered only in June.
The success of BTCChina mirrors the rise and rise of Bitcoin itself. Seen by enthusiasts as a replacement for central bank-issued currencies and by detractors as a bubble and a passing fad, Bitcoin has risen some 5,000 per cent this year in US dollar terms. Surging demand from China has been one of the main reasons.
“If you look at Bitcoin from a technology perspective, you realise it cannot be boxed. And Chinese people love that,” says Bobby Lee, chief executive of BTCChina.
The absence of controls on the peer-to-peer virtual currency, traded largely anonymously and beyond the supervision of national governments, is what has most worried regulators around the world. In China, a country with strict capital controls, it is a big part of what makes Bitcoin so attractive.
Bihang, another Chinese exchange, is explicit on this selling point. “In 200 milliseconds you can move Bitcoin data to the US, for almost no cost,” it says on its website. “The world has never been this flat.”
The potential for evading capital controls has led sceptics to wonder how long the Chinese government will tolerate the trade in Bitcoin. Beijing has yet to take an official stance. A Stanford University computer science graduate and former Yahoo engineer, Mr Lee is careful to point out that BTCChina complies with all Chinese laws and only accepts customers with local bank accounts.
Supporters emphasise Bitcoin’s legal uses and its benefits in reducing online transaction costs. Some merchants on ecommerce group Alibaba’s shopping platforms have started accepting it. One property developer, Shanghai Tiandi, has even said it will take payment in Bitcoin – although no one has yet taken up the offer.
Then there are the speculators. China has had its fair share of investment manias in recent years, from stocks and houses to garlic bulbs and tea leaves. Bitcoin is a tempting new play for punters.
“At first I bought very little, just Rmb100 [$16] worth. But then my girlfriend criticised me for being too cautious, so I bought another Rmb8,000,” says Wang Han, 26, a data analyst. “My goal was just to make enough profit to buy a new iPad mini, and I got that.”
It’s a fantastic concept for people like me who don’t trust fiat money because we fear inflation
- Pierce Wang, electrical engineer
Not all investors have been so fortunate. The website of Global Bond Limited, a Chinese Bitcoin exchange, went offline in late October, taking about Rmb25m from investors with it. Like other Bitcoin frauds, the anonymous nature of the currency has so far made it impossible to track down the culprits.
Pierce Wang, an electrical engineer, suffered a hacking attack that robbed him of Rmb200,000 of Bitcoin in July – a stash that would be worth more than Rmb1m today. He reported the theft to the police but was at first met with confusion. “They had never heard of Bitcoin. They thought it was some kind of online gaming currency,” he says.
Undeterred, he has ploughed another Rmb10,000 into Litecoin, an alternative to Bitcoin, and plans to buy more if the price falls. “It’s a fantastic concept for people like me who don’t trust fiat money because we fear inflation,” he says.
The Bitcoin price has been volatile throughout the world, but the roller-coaster ride in China has been especially intense. It doubled to more than Rmb7,000 per unit this week after Ben Bernanke, chairman of the US Federal Reserve, said that while virtual currencies posed a money-laundering threat, they held promise in making global payments more efficient. But Bitcoin then dropped some 40 per cent in renminbi terms before staging a partial rebound.
July 2013: The FT’s Maija Palmer reports from a Bitcoin conference and buys her first (fraction) of a Bitcoin
The wild swings reflect the fact that although Bitcoin can be moved around the world seamlessly, the real-world currencies for which it is exchanged are still held up by China’s capital controls, creating arbitrage opportunities that can take days to close.
In the first high-level comment from a Chinese official about Bitcoin, Yi Gang, a central bank vice-governor, said at a forum this week that China was not yet ready to recognise the virtual currency’s legality but that it had unique characteristics meriting closer attention.
Some are betting that Beijing will eventually endorse Bitcoin. This week Lightspeed Venture Partners of San Francisco and a China-based sister fund announced a $5m investment in BTCChina.
Jeremy Liew, a partner with the venture capital firm, noted that Chinese state media had given the virtual currency favourable coverage. It is a “nod and wink” from the Communist party that it was content to let the market develop, he says.
Speaking with the fervour of a tech evangelist, BTCChina’s Mr Lee argues that it serves Chinese interests to be the dominant trading force in the global Bitcoin market. “It will be like a utopian society where the world is running off of one unit system, one scale,” he says.
In the meantime, the world’s biggest Bitcoin exchange is putting its newly raised capital to work. From Mr Lee and two co-founders earlier this year, BTCChina has now grown to 20 employees. The magic-marker logo was finally wiped off its front entrance a day ago, and a sleek custom-designed sign installed in its place.
Additional reporting by Stephen Foley in New York and Emma Dong in Beijing
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