US media: China's Bitcoin volatility is not a financial disaster and has limited relationship with the real economy

Reference News reported on February 20 that in China, the world's largest bitcoin trading country, the cryptocurrency has encountered complicated problems since the beginning of the year. Due to the suppression of regulators, the price of bitcoin has changed "abnormally", and the number of bitcoins traded in the country has plummeted from 10 million per day to 30,000 to 90,000.

According to an article on the website of the U.S. biweekly Forbes on February 17, on January 11, the People's Bank of China announced an investigation into bitcoin trading platforms in Beijing and Shanghai to identify possible illegal activities such as money laundering, margin trading and transferring funds abroad. That evening, the price of bitcoin fell by more than 10%.

A little more than a week later, on January 22, three major Chinese exchanges halted free trading of bitcoin to curb speculation, and bitcoin trading fell further due to fees.

On February 9, the People's Bank of China reminded nine bitcoin trading platforms to pay attention to potential risks and curb capital flight. Later that day, the two largest trading platforms, OkCoin and Huobi, suspended withdrawals from the platforms. Bitcoin China also announced a 72-hour waiting period for withdrawals. Other platforms implemented withdrawal restrictions the next day.

The increased regulation has left investors unsure of what to expect, as further regulation is a real possibility. But this is not the first time they have found themselves in this position.

Bitcoin's relationship with China has been rocky over the years, reports say.

As early as December 2013, due to concerns about financial stability, the People's Bank of China banned companies from accepting Bitcoin and restricted banks from exchanging Bitcoin for RMB. Financial and payment services were prevented from participating in Bitcoin-related business activities. As a result of the regulation, in April 2014, Chinese banks closed the trading accounts of some of the largest Bitcoin platforms.

These measures not only caused a drop in trading volume and prices, but also caused panic among investors.

Bitcoin prices plunged 29% between Dec. 5, 2014, when the regulation was announced, and the end of that month. They then continued to rise until the end of 2015, as Chinese investors showed a surge in interest in the virtual currency. The situation now feels familiar.

The report said that despite the current ups and downs of Bitcoin, we still need to put the problem in perspective. This is not the Chinese stock market crash of 2015. Bitcoin's recent price fluctuations are not that large and are more limited to a small group of investors. The total transaction value of Bitcoin is also limited to a smaller amount of US dollars.

There are 21 million bitcoins in existence. So when the price hits the recent $1,000, the total value is $21 billion, and at $900, the total value is $19 billion. Given the global nature of the market, $19 billion to $21 billion is not much. China’s share is even smaller. This market is not a very large financial market by any means, and its relationship to the real economy is limited.

Furthermore, regulation is not anathema to a functioning Bitcoin system. Although it has caused investor panic, in the long run, regulation should be seen as a positive development towards the legalization of cryptocurrency use.

The volatility and panic that these regulatory measures bring should be viewed with equanimity as a normal side effect of controlling a nascent market. Of course, the ups and downs of Chinese Bitcoin prices and the reduction in trading volume have created new winners and losers in the market. However, the fact that Chinese regulators are taking Bitcoin seriously should be a positive sign for users.