On September 16, Chinese authorities and local financial regulators officially requested cryptocurrency exchanges and trading platforms operating within China to halt their services by September 30.
Almost immediately after the announcement of the People’s Bank of China (PBoC) and local financial regulators were made public, bitcoin price plunged from around $3,700 to $2,900. However, within 24 hours since the finalization of nationwide Chinese bitcoin exchange closure, bitcoin price rebounded, rising from $2,900 to $3,830 by recording a 23 percent daily gain.
How Did Bitcoin Rebound so Quickly After China’s Nationwide Ban on Exchanges?
Many prominent bitcoin investors and analysts share a similar sentiment toward the recent bitcoin price drop in that they believe traders have massively overreacted to the closure of Chinese exchanges.
Throughout 2017, the Chinese bitcoin exchange market only accounted for 10 to 13 percent of global bitcoin traders, as WhalePanda noted. Hence, the closure of Chinese exchanges should really have only affected 10 to 13 percent of traders within the global bitcoin trading market. However, traders in the US, Japan and South Korea were quick to react and speculate on the matter by panic selling and leading to a short-term decline in bitcoin price.
It is likely that the majority of traders understood the short-term crash of bitcoin price was an overreaction by the global bitcoin exchange market and prepared to purchase the dip. Many traders waited for bitcoin price to drop significantly below the $3,000 mark and started trading again as bitcoin price demonstrated early signs of recovery.
In the long-run, the ban on Chinese bitcoin exchanges should not have a major impact on both the global bitcoin industry and exchange market. If Chinese investors and traders can no longer trade within the country, they will likely migrate to over-the-counter markets such as LocalBitcoins, or move to other regions such as Hong Kong and Japan to trade.
Several key figures in the bitcoin and cryptocurrency industries including billionaire early-stage technology investor Tim Draper expressed his optimism toward the exit of the Chinese bitcoin exchange market. Draper noted:
“The deadwood of the Bitcoin ecosystem is leaving now. Our faith in the crypto economy will be well rewarded.”
Roger Ver, the CEO at Bitcoin.com and early-stage bitcoin investor who has funded major bitcoin startups such as Blockchain and Kraken, stated:
“Google, Gmail, YouTube, Facebook, Twitter, Wikipedia, & now Bitcoin exchanges. If strangers in China try to ban you, you’re in good company.”
For OKCoin, BTCC and Huobi, the three largest bitcoin exchanges and trading platforms in China that were recently requested to shut down by the end of October, China’s nationwide ban on exchanges will definitely affect their businesses and operations negatively. However, it is also an opportunity for the abovementioned companies to leave the Chinese market and test other emerging and growing markets.
For instance, Japan has evolved into the second largest bitcoin market behind the US with efficient and practical regulations. Hong Kong has also been praised by bitcoin startups and blockchain projects for their friendly regulatory frameworks.
BTCC has already released a statement that only their Chinese operations will come to an end by September. OKCoin and Huobi will likely continue their international trading platform even after their Chinese services become terminated by October.
Many Chinese bitcoin exchanges have worked and cooperated closely with the local government to improve the market and establish better standards for the industry. Instead, they were unfairly punished and shut down by the authorities.
As bitcoin price recovers and the global bitcoin market grows exponentially, China will further isolate itself from bitcoin and the cryptocurrency industry, as Australia and many other countries did in 2014.