Skip to main content
Part of complete coverage on

China's bitcoin boom and bust

By Zhang Dayu and Kevin Voigt, CNN
updated 2:56 AM EST, Fri December 6, 2013
More than a third of the world's bitcoin transactions now flow through China's largest bitcoin trading website.
More than a third of the world's bitcoin transactions now flow through China's largest bitcoin trading website.
STORY HIGHLIGHTS
  • NEW: Chinese authorities crack down on bitcoin
  • Analysts: Bitcoin value is being fueled by voracious Chinese investors
  • A third of world's transactions now flow through China's largest bitcoin trading website

Beijing, China (CNN) -- When 23-year-old magazine editor Liu Xinda looked to make his first investment in 2012, he considered the stock market. Many Chinese investors have jumped on the skyrocketing property market, but it was too rich for Liu's blood.

Instead he decided to invest in bitcoin. "I believed in bitcoin as a more secure way to store the value than renminbi," Liu said, referring to China's currency. "I trusted in its mechanisms."

Liu's trust paid off -- he purchased bitcoin when it was trading at 60 yuan (U.S.$9.85) on the Chinese market and sold when it was trading at 700 yuan ($115) in June. Last week, bitcoin was trading at 7,000 yuan ($1,149).

With bitcoin now reaching prices equivalent to an ounce of gold, more investors are turning toward the digital currency for a return on investment. And Chinese investors seeking similar investment success like Liu are feeding the bitcoin frenzy.

Bitcoin documentary in the works
Pay for a trip to space with Bitcoin
Bitcoin buzz
Bitcoin boom

More than a third of the world's bitcoin transactions now flow through China's largest bitcoin trading website BTC China, according to bitcoin data websites. China has surpassed Japan's Mt.Gox and Europe's BitStamp, reaching 100,000 Bitcoins in daily trading volumes, or more than 400 million yuan (U.S.$65.7 million) in daily transactions.

Infographic: What is bitcoin?

"We think it's because bitcoin presents itself as a new asset class, albeit digital in nature. And given China is a country with strong practice of savings," Bobby Lee, CEO and co-founder of BTC China, told CNN. "It is quite understandable that the Chinese would want to explore bitcoins as yet another potential asset class for investing some of their savings."

In recent years China has been pushing to internationalize the yuan, adding more value to the once tightly controlled currency on international markets.

But despite the changes, controls mean individuals still find it difficult to invest in assets outside China. As a result, more Chinese are looking to invest in alternative assets like bitcoin.

Trading in the digital currency has been extremely volatile. Early in November the currency rose to what was then an all-time high of $900 earlier, only to fall back to $500 in the span of 28 hours. By last Friday, it was trading as high as $1,242.

Bitcoin worth almost as much as gold

"Chinese interest could play a huge role in turning bitcoin into the first trillion dollar non-fiat currency," Stan Stalnaker -- founding director of Hub Culture and the Ven, an asset-backed Internet reserve currency -- recently wrote in a CNNMoney opinion piece.

"Ironically, it is the United States, the 'free market' financial heavyweight in the world, that finds itself moving slowly to figure out how to adopt bitcoin," he wrote. "Meanwhile, China is proving to be a leading player in this 21st century currency."

However, digital currencies are not officially recognized as legitimate in China. In 2009, the government restricted the use of QQ coin, a popular virtual currency created by tech tycoon Tencent, to only virtual products.

Now Bitcoin faces a similar move.

China's central bank warned late on Thursday that Bitcoin carries substantial risks and issued new rules to prohibit financial institutions from dealing in the digital currency.

Ron Paul: Bitcoin could 'destroy the dollar'

Under the new regulation, financial institutions in China are banned from trading, underwriting or offering insurance in bitcoin. In addition, websites in China that provide trading services are required to report investors' identities to regulators and take steps to prohibit money laundering.

Following the central bank's announcement, the bitcoin price on the Chinese market shrunk by more than 20% and is still in decline.

While the central bank did not outlaw or prohibit individuals from owning bitcoin, the guidelines specify that it is not to be considered a currency.

With his past gains, Liu is happy to besitting out the current bitcoin boom and bust.

"The ongoing trend is nothing more than a hype to attract geeks," he said. "It's still very hard to spend. And I'm not investing more in bitcoin until I can use it to buy things from Taobao and Amazon."

"These are speculators that don't have faith in Bitcoin's value. They'll bailout from the market immediately after they suffer a deficit," he added.

ADVERTISEMENT
Part of complete coverage on
updated 12:46 PM EST, Sun December 21, 2014
The tragic killing of two cops could not have happened at a worse time for a city embroiled in a bitter public battle over police-community relations, Errol Louis says.
updated 8:27 AM EST, Mon December 22, 2014
North Korea warns the United States that U.S. "citadels" will be attacked, dwarfing the hacking attack on Sony that led to the cancellation of a comedy film's release.
updated 9:51 PM EST, Sun December 21, 2014
The gateway to Japan's capital, Tokyo Station, is celebrating its centennial this month -- and it's never looked better.
updated 11:21 AM EST, Sat December 20, 2014
More than 1.7 million children in conflict-torn areas of eastern Ukraine face an "extremely serious" situation, Unicef has warned.
updated 8:22 AM EST, Fri December 19, 2014
Boko Haram's latest abductions may meet a weary global reaction, Nigerian journalist Tolu Ogunlesi says.
updated 5:34 AM EST, Fri December 19, 2014
Drops, smudges, pools of blood are everywhere -- but in the computer room CNN's Nic Robertson reels from the true horror of the Peshawar school attack.
updated 9:43 PM EST, Wed December 17, 2014
The gunman behind the deadly siege in Sydney this week was not on a security watch list, and Australia's Prime Minister wants to know why.
updated 4:48 AM EST, Thu December 18, 2014
Bestselling author Marjorie Liu had set her sights on being a lawyer, but realized it wasn't what she wanted to do for the rest of her life.
updated 3:27 PM EST, Tue December 16, 2014
CNN's Matthew Chance looks into an HRW report saying Russia has "legalized discrimination against LGBT people."
updated 9:12 PM EST, Mon December 15, 2014
The Sydney siege has brought home some troubling truths to Australians. They are not immune to what are often called "lone-wolf" terror attacks.
Bill Cosby has kept quiet as sexual assault allegations mounted against him, but his wife, Camille, finally spoke out in defense of her husband.
updated 12:01 PM EST, Mon December 22, 2014
Each day, CNN brings you an image capturing a moment to remember, defining the present in our changing world.
Browse through images from CNN teams around the world that you don't always see on news reports.
ADVERTISEMENT