Why you should care about China banning initial coin offerings
Bitcoin bounced by more than 20 per cent in the space of just four hours on Friday, having skidded below US$3,000 earlier as Chinese authorities ordered Beijing-based cryptocurrency exchanges to stop trading.
After a vertiginous climb to record highs close to US$5,000 earlier this month, bitcoin had plunged almost 40 per cent in the 12 following days, with the sell-off driven in large part by fears of China cracking down on the market as well as a warning from JPMorgan CEO Jamie Dimon that bitcoin was a "fraud".
The rapidity of the fall - matched by losses across the hundreds of other cryptocurrencies that now rival bitcoin - had driven fears that a giant crypto-bubble was finally bursting. Bitcoin looked likely to record its worst week since 2013.
But after seven consecutive days of falls, bitcoin was up around 13 per cent on the day by 11:38 a.m. ET at US$3,637 on the U.S. Bitstamp exchange, around 22 per cent up from its earlier low and leaving it just 13 per cent down on the week.
Chinese exchanges were told by authorities to immediately notify users of their closure, and to stop allowing new user registrations as of Friday, according to a government notice.
But although Chinese exchanges used to dominate bitcoin trading - according to their reports - because of the fact that they did not charge fees, volumes have plunged since January, when Chinese authorities made fees mandatory.
That, industry experts said, means that although China is still important, the crackdown there would probably not be enough to cripple bitcoin, unless it was followed by exchange shut-downs in other parts of the globe.
"Chinese volumes account for less than 10 per cent of global volume - they are no big deal," said Charles Hayter, founder of cryptocurrency analysis website Cryptocompare.
Beijing-based platforms OkCoin and Huobi, which are among China's biggest exchanges, said on Friday that they planned to stop yuan-based trading by Oct. 31, confirming earlier reports.
"Waiting for the axe to fall is worse than the actual event; leaked documents seem to be clearing up uncertainty," said Hayter. "But also a bounce of this magnitude was on the cards after such steep losses."
Shanghai-based BTCChina, a major Chinese bitcoin exchange, had said on Thursday it would stop all trading from Sept. 30, citing tightening regulation. Smaller Chinese bitcoin exchanges ViaBTC, YoBTC and Yunbi also announced similar closures on Friday.