China, Fees, and Fake Volume: BTCManager’s Week in Review January 23
Following recent warnings and inspections by Chinese financial regulators, four of the largest Chinese bitcoin and cryptocurrency exchanges have synchronously announced the implementation of a flat 0.2 percent service fee on all transactions involving the bitcoin and litecoin cryptocurrencies, beginning Tuesday, January 24.
The announcements from all four exchanges, BTCC, OKCoin, Huobi, and YUNBI are all identical, suggesting that this was either the result of a mandatory “suggestion” by Chinese regulators, or perhaps a collaborative decision by these exchanges to curb market manipulation and extreme volatility by self-regulating, or maybe both.
On January 19, Huobi, OKCoin, and BTCC simultaneously terminated margin trading on their respective exchanges. While it was stated that margin trading was discontinued on Huobi by regulators, BTCC claimed they made the decision themselves. The group regulating Chinese bitcoin exchanges and doing inspections of these platforms consist of people from the Shanghai branch of the People’s Bank of China, the Shanghai Financial Affairs Office, and other related government agencies.
Coincidentally, popular UK exchange, Coinfloor, switched over to zero fee trading on January 17 stating, “We are already the most liquid GBP/XBT exchange, but we believe this change will increase trade volumes and improve liquidity even further.”
It is clear that zero fees encourage higher trading volume, but this volume is not always genuine. With the absence of trading fees, trading bots/algorithms can conduct high-frequency trading (HFT) at no cost. Research in this area has shown that prices overreact to the news when HFT activity is at high volume, and this can have detrimental effects on capital markets and lead to extremely higher market volatility. Bobby Lee, CEO of BTCC, has also stated that his competitors, Okcoin and Huobi, are known for inflating trading volumes artificially, a market manipulation technique called “wash trading.”
With so much global instability in politics and volatility in the forex markets, the hard-earned good name of bitcoin as a safe haven for wealth cannot afford to be smeared with allegations of market manipulation, non-compliance with AML standards, or any other allegations that regulators want to pin on it. In other words, the Year of the Rooster is a wake up call for Bitcoiners, bitcoin exchanges, developers, and the entire community to mend differences, clean up their acts, and wash their hands of questionable practices. In troubled times, the value of bitcoin will not be judged by its price in fiat, but rather by its durability and dependability.
In the past months, in anticipation of Donald Trump’s “America First” platform, Chinese financial regulators have announced a slew of new restrictions to prevent money from leaving China and slow the depreciation of the yuan. Middle class and wealthy Chinese have been converting money into other currencies to protect against devaluation, putting downward pressure on the yuan.
Also, South China Morning Post reported on January 23 that China is to ban the use of all unapproved VPNs. The Ministry of Industry has stated, “without the approval of the telecommunications authorities, gateways including virtual private network VPN and other channels shall not be self-established or leased to carry out cross-border business activities.”
The pressures on the local economy will result in pressure on Chinese bitcoin exchanges to prevent bitcoin from becoming a vehicle for moving value out of China. Since the world’s most populous country has the highest volume of bitcoin trading in the world, pressures on Chinese bitcoin exchanges are also pressures on the bitcoin currency itself, but this may change soon. Japan is catching up to China and currently has the second-largest bitcoin trading volume globally.
At any rate, the prohibition of margin loans, implementation of trading fees, and the new constraints on bitcoin trading in China should discourage market manipulation and artificial volume sufficiently so that a path can be forged for a more credible bitcoin market.
This week’s review is compiled from contributions by Evan Sixtin, Christoph Bergmann, Joseph Young, Michael Scott, and Nigel Dollentas.
The PBOC has also recently forced two major Chinese Bitcoin exchanges, OKCoin and Houbi, two of the three central Chinese exchanges, to halt margin trading immediately. The PBOC claims this not only goes against Chinese regulations but may have also contributed to Bitcoin’s recently volatility. On top of this, findings revealed the exchanges did not have a third party depository of investor’s funds, as well as adequate AML measures.
Many bitcoin enthusiasts have stated that Segregated Witness (SegWit) is not an efficient scaling technology as it significantly alters the structure of transactions. However, bitcoin experts including Antonopoulos believe that the upgrade offers more improvements apart from scalability, as it opens the door for alternative solutions such as the Lightning Network and TumbleBit.
Grayscale Investments, the company behind the investment vehicle of the Bitcoin Investment Trust (GBTC), have now filed with the New York Stock Exchange to make bitcoin more accessible to investors, announced January 20. With an IPO of $500 million, it should be plenty to appease the rapid influx of Wall Street traders looking to enter into an entirely new asset class.
Thomas Hartman and Alex Kravets find themselves entrenched in a bold endeavor based on the following belief; Bitcoin, to become mainstream as a global transaction and savings medium, must be physical. Taking precious metal coins as their starting point, these two ambitious entrepreneurs are in the throes of curating a physical bitcoin that they hope will appeal to the masses.
Once in a year in late January, the economic and political leaders of the world meet in Swiss mountain village Davos to discuss the state of the world and connect with each other. This year the Blockchain was a big topic, with the launch of the Global Blockchain Business Council and an announcement to bring the oil trade on a blockchain.