What at first looked like a crackdown on the local bitcoin industry by Chinese authorities is beginning to look more like a detente, according to several bitcoin watchers.
On Monday, four Chinese exchanges announced that they would begin charging a transaction fee of 0.2%, reforms that many believe were implemented to satisfy Chinese regulators, who earlier this month said they would investigate local exchanges to reinforce the importance of remaining compliant with local laws.
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These changes have a broader significance for the bitcoin market. Charles Hayter, founder and chief executive officer of CryptoCompare and Chris Burniske, blockchain products lead at ARK Invest, believe that, rather than trying to stifle bitcoin trading, Chinese authorities have reached an understanding that would allow the industry to continue growing in China—which could help preserve bitcoin’s recent price gains.
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Judging by the price action following the announcements, traders seem to agree: The bitcoin price moved marginally lower on Tuesday, but it
has held above $900, a sign that the digital currency may be stabilizing as investors grow bullish about its future in China.
“To further curb market manipulation and extreme volatility, BTCChina will start charging fees for bitcoin and litecoin trading beginning at noon GMT on Tuesday Jan. 24. Market makers and takers will both be charged a flat fee of 0.2% per transaction,” according to a statement released on the exchange’s website.
Last week, Huobi and OKCoin, two of the world’s largest bitcoin exchanges, confirmed that they had halted margin trading at the behest of the People’s Bank of China. Exchanges often extend credit to traders—a process called trading on margin—who borrow against money held in a brokerage account.
According to the exchanges, the margin halts were intended to curb market manipulation and excessive volatility.
The bitcoin price dropped from a more than three-year high earlier this month after Chinese authorities announced that they would investigate local exchanges.
To be sure, shutting down the bitcoin network would be virtually impossible, Burniske said, but any crackdown could induce volatility and hamper growth by forcing the industry underground.
China is a crucial market for bitcoin. The vast majority of bitcoin trades are executed on Chinese exchanges. Because of relatively high demand in China, buyers using yuan often pay a slight premium compared with those buying in dollars, Hayter said.
Soon after bitcoin reached its all-time high in November 2013, Chinese authorities banned local financial firms from dealing in the cryptocurrency, which helped trigger the dramatic selloff that followed, Burniske said.
But since then, they have allowed the industry to grow largely unchecked.
Bitcoin traders have often favored Chinese exchanges for the absence of transaction fees. U.S.-based exchanges have charged fees for years. Though the price has remained buoyant, volume appears to have shifted away from the Chinese exchanges that have traditionally dominated the market. In the past 24 hours, most bitcoin transactions have been executed in dollars, according to data available on CoinMarketCap.
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