LONDON — The CEO of one of China’s biggest bitcoin exchanges believes regulation of the market by the People’s Bank of China (PBoC) is inevitable, following the explosion of the cryptocurrency’s popularity in China.
BTCC CEO and cofounder Bobby Lee told Business Insider: “I think it’s a matter of time, not a matter of if. The question is when.
“The answer is, I don’t know when it will happen but I know it will happen. I have confidence of that because fundamentally I think bitcoin exchanges need to be regulated.”
The declaration comes amid an investigation into the platform and other leading Chinese exchanges launched by the PBoC at the start of the year. BTCC and two of China’s other biggest exchanges, Huboi and OkCoin, earlier this week introduced transaction fees for trading on their platforms, with suspicion that the PBoC forced the change behind the scenes.
Lee, speaking to BI in London during a visit for London Blockchain Week, said the transaction fees were not mandated by the PBoC but were introduced to head off some of the central bank’s concerns about the virtual currency.
“They were not suggested,” he said. “We knew these were things that they might do so we did it first.” Other changes introduced by the platforms include curtailing margin trading — loaning people money to trade bitcoin with.
The explosion of bitcoin in China
Bitcoin has exploded in popularity in China over the last 3 years and now accounts for an estimated 99% of all trade in the cryptocurrency. The PBoC opened an investigation into the exchanges after seeing a huge spike in the price at the end of December and beginning of January.
“Bitcoin regulation may not have been on their agenda for 2017, but given the price spike in early January, it became an emergency topic,” Lee says.
“They have seen the price go up a lot. They want to make sure the price doesn’t go crazy, create a bubble, and hurt a lot of investors. They’re a little bit unhappy with how the price goes up too much so they have been giving us some scrutiny.”
They want to make sure the price doesn’t go crazy, create a bubble, and hurt a lot of investors
Lee confirmed that the regulator is concerned about this but downplayed capital flight concerns, saying: “It is my observation that it’s not happening. The reason is that bitcoin transactions are always trade neutral. For every one bitcoin that’s purchased in China, one bitcoin is sold in China.
“It’s kind of planes at the airport. Sure, every there’s 60 aeroplanes that take off but every day there are 60 aeroplanes that land. It’s no different from me saying bitcoin is great for capital landing. Bitcoin was sold in China and turned into renminbi. There’s amazing capital infusion.
“It’s not a tool for flight because in the end the bitcoins that purchased and leave the country potentially, but the reality is the money that the buyers used for the bitcoin gets handed to the sellers, who still use local money. That’s not going to affect the foreign currency reserves of China.”
The PBoC’s probe appears to have been particularly heavy on BTCC, with reports that the central bank found “hidden risk” and is “operating beyond its scope.” Lee denied this to Reuters.
Lee said he is confident that the new fees and axing margin trading would address the central bank’s concerns about a price bubble. He said: “We think trading fees will calm down the market, lower trading volumes a bit, and allow a more healthy bitcoin exchange market.”
The PBoC’s public probe has already taken the wind out of bitcoin’s sails, pushing the currency back below $1,000. Lee says: “We’ve been meeting with them all along for the last two or three years but this time they wanted to publicise it to send a signal to the market that the PBoC is still the regulatory body that’s in charge.”
He said the PBoC was still probing BTCC but said the scrutiny is “blowing over.” He said: “We expect two or three months, maybe by February/March [it will have been resolved].”
He added: “We think it’s a win-win. Many users support it because the fees were proposing are very low — 0.2% for each transaction. They would actually like to see a more healthy, growing bitcoin industry.
“We make money through very slim margins on withdrawal fees. Trading fees will give us more breathing room. With the PBoC potentially coming in to regulate this I think that’s a good signal to send.”
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