While I am not endorsing bitcoin as an investment (I don’t actually), a vocal minority of English-speaking Bitcoin adopters on reddit and Bitcoin Talk are proverbial bandwagon fans.

In November, when Chinese consumers exploded onto the Bitcoin scene, many commentators cheered them on, welcoming them into the big leagues.

Ever since bitcoin prices peaked in early December (corresponding with the December 5th notice (Chinese) from the PBOC), many of these same armchair commanders / evangelical adopters have thrown all of China under the bus.

For instance, on Friday CoinDesk published a story about FXBTC (a Chinese bitcoin exchange) closing down next week.  The very first comment was the following:

The rest of the world would be better to ignore these PBOC reports. Bitcoin will go stronger once that happens.

Throughout each week similar such comments are posted on reddit (here) and Bitcoin Talk (here). The truth is, Chinese consumers created enormous demand that drove up the prices in late November and early December.  And the price has fallen measurably since the peak five months ago a peak which corresponded with the first “crack down.”

This may not be something you want to hear as an investor, but it is the truth of the matter.  While some claim that Chinese exchanges were fudging their volume and liquidity, extraordinary claims require extraordinary evidence.  I wrote an article 4 months ago (that was republished by Business Insider) that discussed several ways to purportedly fake the volume, yet even I do not have a smoking gun (yet).  In fact, post-December 5th I think most of the big exchanges (like Huobi and OKCoin) were probably posting real numbers. And in all likelihood, correlation is causation: the PBOC is a force to be reckoned with, they enacted (caused) new regulations and guidance which scared both smart money and Chinese day traders away which correlates with the continual drop in prices.

To compound this issue are enthusiastic Bitcoin advocates in China, especially exchange and merchant developers who spread their own counter-propaganda that is wholly without evidence.  The fact of the matter is, there has been a cat and mouse game going on for months now and while exchange operators have found temporary workarounds, the writing is on the wall: Bitcoin exchanges are for the time being persona non grata on the mainland.  There may be a few other loopholes and workarounds (which are quickly removed), but to believe otherwise is wishful thinking.  No amount of marketing spins or gimmicks like ATMs will likely change that in the short-run.1

Perhaps these types of inflammatory we-love-you-now-we-hate-you comments only represent a vocal minority, but it is pretty clear that most tokenholics do not care about utilizing a trustless consensus mechanism to empower the underbanked in developing countries such as China.2

Instead of loathing China, the community as a whole should sympathize with the loss of a comrade.  I do not expect this to happen though.  I briefly mentioned this in my Q/A at Stanford on Monday.  The Chinese government is opaque but the worst thing they could do is go all draconian (like blocking websites or arresting entrepreneurs) which they haven’t and egging them on, as endless threads on reddit do, is only hurting the very people Bitcoin was purportedly designed to help.

Will Hong Kong be the saving grace?

Most Chinese operations now have accounts in Hong Kong but they cannot operate as bitcoin businesses; the Hong Kong Monetary Authority (HKMA) has asked Hong Kong banks to report any account related to cryptocurrencies so most of the accounts are usually not open about the true nature of the operations.  Some are still openly related to bitcoin but for mining investments (hardware purchases) or merchant investments and there is still pressure on those.

If you only care about the value of the token, the ledger entry, the UTXO, etc. then you are going to need a bigger whale.  China was a huge whale.  Perhaps in a bit of irony, this summer funds from Wall Street (from bitlicensed firms) could end up driving up the price once again, effectively bailing out some of the reddit bitcoin holders who are now underwater.  Cui bono.

[Note: Weiwu Zhang has been posting some interesting analysis over the past few months at a German Bitcoin site.  His prediction are not always correct, but it is a fresh perspective that seems more grounded than the typical “invest on hope” mantra.]

Update: Just found out that all of the Bitcoin exchanges in China have pulled out of the upcoming Global Conference in Beijing on May 10th.  They are taking the PBOC notification / guidance very seriously and do not want to irk policy makers.  So they will not give presentations or show up in any official capacity (their sponsorship continues though — money has already been paid).  This is sad news.

Update 2: I have had three different independent confirmations to the first update.  The Global Conference website is slow to update the changes to the schedule. This article (Chinese) is apparently the one that asymmetrically influenced the entire segment a week ago.  Its message of “don’t irritate the PBOC” went viral with about 30,000 hits (which is probably a decent estimate of how many people actually use bitcoin on-chain in China).  The exchanges met later and then decided not to attend in official capacity.  The article mentions that the PBOC does not want China to be the largest market (as it has been) and actually mentions an upperbound target of 3000-8000 BTC daily volume for the entire country.  The actual number is unimportant, the attitude is.  The PBOC (and China) does not want to be a leader but rather as a follower based on the regulations and outcomes from the US and other jurisdictions (like Germany and Canada).

Update 3: the big exchanges just issued a joint statement (Chinese) saying they will adhere to the new PBOC guidance. They did not clearly say what that exactly means and will continue to operate (function as an exchange).

Update 4: CoinDesk just published a new story on the exchanges that pulled out of the conference.

1. Bitcoin ATMs are likely underutilized globally, many are probably unprofitable too, hence the lack of public boasting by ATM operators. [↩]
2. The title of the white paper and the first section of the white paper are specifically identify peer-to-peer payments as a way to reduce friction and trust of the traditional banking system. [↩]