On Monday the cryptocurrency bitcoin did something expected in an unexpected fashion. The price broke out of the relatively stable $400-$450 range it had found itself in for several weeks. For BTC’s relatively short history, this in itself is nothing new. The story of bitcoin in 2014 is one of flatlines and dropdowns. The last 21 days of flat price movement was broken. And, despite our assertions otherwise, it broke up, gaining 10 percent on the day.
While the pop was unexpected, it doesn’t take much digging to find the source. Despite Stateside evangelists patting themselves on the back for successfully spreading the BTC gospel, the recent uptick can be explained with the same ol’ story. The price driver was likely not American bitcoin bulls, but Chinese investors looking to store their wealth digitally.
Chinese Exchanges Represent Majority of Volume
Over the past 24 hours, the vast majority of bitcoin volume took place on two exchanges: OKCoin and HuoBi. According to BTCKan, the volume on just these two exchanges represented nearly half of all bitcoin transactions on the day. When other Chinese exchanges like BTC China and ChBTC are included, that number edges closer to 60 percent of BTC traded in renminbi.
While trading data from the Chinese exchanges needs to be taken with a grain of salt, volume trackers on the Stateside have decided to respond by ignoring the Chinese data entirely.
You wouldn’t know the size of China’s influence on BTC by looking at bitcoin volume charts like Coin Market Cap, which tracks valuations for bitcoin and all the other major (and not-so-major) digital currencies. Coin Market Cap claims that 85 percent of BTC trades take place in USD, and only 8 percent in the Chinese national currency. That certainly paints a picture of a world wherein bitcoin is dictated by American investors, with some Chinese dabbling on the side.
Just Because They’re Crooked Doesn’t Mean They Don't Exist
But there’s a problem. Coin Market Cap gets their bitcoin info from BitcoinAverage, who entirely excludes some major exchanges from their data set. Notably, the biggest Chinese exchanges of OKCoin and HuoBi.
Their reasoning for excluding them is that their volume numbers aren’t to be trusted. And there’s certainly validity to the notion that OKCoin, at least, has significantly fudged volume data in the past. But excluding them from the figures outright makes the BTC market in China appear much weaker than it actually is.
China’s influence on bitcoin’s price is well understood, and is much more severe than 8 percent of trading volume (as reported by Coin Market Cap) would indicate. You’ll be hard pressed to find someone argue that bitcoin’s crash in December 2013 had anything to do with anything besides tightened Chinese regulations and Beijing banning financial institutions from trading BTC. Same goes for any of the other blips as of late. Even if OKCoin fudges their exact numbers, the effect of Chinese exchanges on the market is very real.
The bitcoin market is incredibly hard to predict, befitting a decentralized asset with no backing government. But when there’s a drop or a spike, chances are investors in China, who tend to move in flocks in investing, have suddenly become bearish or bullish on bitcoin.