Why the bitcoin has become China’s new darling

Bitcoin has become the new darling of mainland punters amid a slumbering stock market, heightened expectations of the yuan’s devaluation and even the advantages the payment system offers in dodging Beijing’s anti-corruption drive.

The cryptocurrency has surged nearly 30 per cent in the past two weeks, hitting US$584 on Monday, according to the Bitstamp exchange.

Trading volume on BTC China has jumped three to five times recently, with the majority of trading worldwide conducted via Chinese exchanges.

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Indications are that a frenzied buying from mainland speculators would be enough to support upward momentum despite worries about the safety of the investment and a lack of knowledge about the technologies behind the technology.

Zhou Lingzi, a Shanghai-based businessman, is among those pondering whether to jump on the bandwagon in pursuit of short-term gains from the digital currency.

“An upsurge is apparently a well-established trend,” he said. “I see no harm in putting down a small portion of my savings to bet on it.”

On the mainland, millions of small investors still regard equity and money markets as casino-style platforms. They used to “gamble” on a wide range of investment products including stocks, futures, gold, financial derivatives, and even postage stamps.

Typically, investors ignore fundamentals while attempting to sniff out pricing trends based on liquidity changes.

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“The absolute number of bitcoin traders in China might not seem to be that astonishing based on the size of the mainland economy, but the price growth is attracting fresh buying interest,” said Richard Zhu, a senior IT engineer at Shanghai-based financial service firm Zillion Fortune. “Volatility is the name of the game for mainland speculators.”

Bobby Lee, BTC China’s chief executive, said that technically bitcoin could also be used by corrupt officials to move their illicit gains out of the mainland.

Invented in 2008, bitcoin miners compete to solve mathematical puzzles every 10 minutes to validate blocks of transactions. The first to solve the puzzle is rewarded 25 new bitcoins.

The reward falls by half every four years to stem inflation and the next drop is July 10.

Investor Zhou said that he believed punters would pour in more funds ahead of the US Federal Reserve’s meeting to decide whether it will raise interest rates.

“This is how mainland investors speculate on anything that volatile,” he said. “And this is an opportunity.”

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The yuan slid to a 4 ½ year low at the end of May amid fears that it could slump further because it was being propped up by the central bank.

“The investment spree is well-founded because of the rarity of bitcoins,” Lee said. “The increasing need for hedging against the yuan’s depreciation and the central banks’ continued printing of money have convinced investors’ of the bitcoin’s investment value.”

He added that the crackdown by China’s central bank on the digital currency wouldn’t have a big impact on trading within the mainland due to stronger buying interest among the public.

In late 2013, the People’s Bank of China barred payment companies from accepting bitcoin transactions.

Lian Ping, Bank of Communications chief economist, said the speculative mood surrounding bitcoin wouldn’t prompt any further action by mainland authorities in the immediate future.

It is estimated that the 15.5 million bitcoins in circulation around the world are valued at US$8.5 billion, representing only a small fraction of the economy.

“It’s unlikely to stir chaos in the mainland’s finance sector,” Lian said. “It is not unusual for Chinese speculators to flock to any investment tool when trading appears to be volatile.”

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