Former Governor of Bank of China: `If you want to kill Bitcoin, it will be an impossible task´

“Bitcoin was built on a platform without national boundaries,” the Former Governor of the Bank of China, L H Li, said on CCTV Tuesday in China. “If you want to kill Bitcoin, it will be an impossible task. So it will continue to exist. What is important now is that we should properly regulate it.” 

Rumors in China have led bitcoin exchange executives to expect “forthcoming official guidelines in the coming weeks” by PBoC (People’s Bank of China). “Such regulations could set a global precedent”, says Aurélien Menant, Founder, and CEO of Gatecoin, a regulated blockchain asset exchange based in Hong Kong. “China will probably beat Japan as the first nation to officially regulate cryptocurrency trading and exchange activities.”

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“Following the growth of QQcoin in the late 2000s, virtual currencies were banned in China,” says Mr. Menant, referring to a previous digital currency experiment. But this did not stop China from becoming a Bitcoin powerhouse.

The Bitcoin industry started to emerge in 2011, as did interest from several large regional venture capital firms, like Zhenfund, IDG and Sequoia Capital. Since late 2013, according to Mr. Menant, Chinese bitcoin exchanges came to dominate global trading volumes. This was largely thanks to large bitcoin mining operations in Mainland China, which created a high amount of liquidity in the market.

“A lack of lucrative domestic investment opportunities also stoked demand for alternative assets, such as bitcoin, and until recently the government had taken a relatively laissez-faire approach to bitcoin exchange activities which provided opportunities for leveraged trading”, Mr. Menant says.

The situation has changed swiftly early 2017. “The PBoC’s investigations into Bitcoin service providers prove that the Chinese Government recognizes the potential of Bitcoin to enable secure value transfers,” according to Mr. Menant.

Chinese authorities are seeking to ensure that Bitcoin investors receive the same protections and are subject to the same levels of scrutiny as investors of conventional asset classes, according to state releases.

‘Persistent and increasing rumors of capital controls’

“This change in perspective demonstrates the growing adoption of bitcoin as an asset class, and is a sign of the development of regulated bitcoin trading markets in Mainland China. This is significant given that China is still home to the largest bitcoin trading volumes,” says Mr. Menant. “There are persistent and increasing rumors of capital controls being applied to local bitcoin exchanges, which, if true, are likely to have a strong impact on volumes and price.”

There are no official statements confirming such capital controls.

Mainstream media both in the east and the west has fostered an environment of hysteria around PBoC actions, claiming there will be a “crackdown” or “ban” on Bitcoin. Gatecoin believes actions by Chinese authorities will instead harbor a “clearer understanding” about Bitcoin in the country, and weed out bad actors.

“Players will be forced to comply with regulations designed to protect retail investors and legitimize bitcoin as an asset class,” according to Mr. Menant. “With the absence of so many exchanges offering leveraged trading, we are seeing more normal volumes and price movements, and as the global share of Chinese exchanges declines, events in China are going to have far less influence on the average price.” Chinese volumes did demonstrate a steep drop after PBoC announcements, and the subsequent fees on Bitcoin margin trading instituted by main Chinese bitcoin exchanges. The volumes have since partially rebounded.

Although Gatecoin is based in Hong Kong, forty percent of the firm’s clients are based in Europe, with thirty percent from Greater China and the rest of the world. The firm, which lists ethereum tokens, is still working to reimburse the clients affected by a May 2016 hack, in which $2 million in funds were stolen, but has yet to announce a timeline for the completion of the repayment.

Gatecoin participated in a blockchain conference in 2016 organized by Chinese officials in Changsha. Ji Xiaonan, President of the Board of Supervisors for China’s State-Owned Asset Supervision and Administration Commission,” referred to Bitcoin as “the only mature blockchain technology” in use. “The biggest blockchain market is China,” he added, while commending the digital currency for its decentralizing aspects and peer-to-peer nature.

Mr. Menant adds: “We are eager to meet with the Chinese authorities on a regular basis to help them setting up a balanced regulatory framework like we do in Hong Kong and Europe.”

What do you think about the new changes to Chinese bitcoin exchanges? Let us know in the comments below.

Images courtesy of Shutterstock, Gatecoin, and cnLedger

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