China (Bitcoin) fact of the day

by on June 5, 2016 at 3:34 pm in Current Affairs, Economics, Law | Permalink

Most trading in bitcoin takes place in China: Huobi and OKCoin, two Chinese exchanges, are thought to account for more than 90% of transactions. The currency seems to have become an outlet for Chinese savers frustrated with their limited investment options and searching for high-yielding assets. The Chinese authorities are worried enough to have banned banks from dealing in bitcoin, but individuals are still free to speculate and have been doing so with gusto.

That is from The Economist.  It is consistent with my view that Bitcoin is a largely mature technology, used mostly for evading Chinese capital controls.

1 jseliger June 5, 2016 at 4:03 pm

It is consistent with my view that Bitcoin is a largely mature technology, used mostly for evading Chinese capital controls.

I wonder how it’s going in Venezuela. That seems like an article waiting to be written, and, if it has already been written, I haven’t seen it.

2 Andre June 5, 2016 at 6:17 pm

If you have no electricity or internet how do you get to your bitcoins?

3 Heorogar June 5, 2016 at 8:21 pm

Truth. What precautions are in place to protect the grid from an EMP or other man-made or natural cataclysm?

Not to worry. The elites are on top of it diverting your attention with men in girls’ rooms, gun control, and black lives matter.

4 Jim June 5, 2016 at 4:28 pm

Tyler on Bitcoin in 2013 nothing to see here. 2014 it’s a bubble burst and it’s over. 2015 it’s really over this time. 2016 it’s mature and only used in China. 2017?

5 Jim June 5, 2016 at 5:00 pm

Just curious why you don’t see this (free market money) as the path to freedom? How can the state regulate paycheck size, toilet size, light bulb color, welfare, warfare if the people don’t use its money?

6 Jody June 5, 2016 at 7:23 pm

How? By having guns and a monopoly on legal violence.

7 Adrian Ratnapala June 6, 2016 at 2:01 am

Guns are important but overrated — after all even a military tyrant-thug rules through other people and not by personally threatening all the citizens.

Governments, good and bad, are a logical end point to the tendency for people to cooperate with those that already have power. One reason to obey the government is that it can make others stop cooperating with you.

To survive in large modern societies, we must cooperate with strangers via money. The ability of of governments to turn financial services on and off (e.g. to freeze your accounts) is one of its main levers of power.

8 WC Varones June 5, 2016 at 5:34 pm

1) High-yielding? Say what?

2) When it comes to mediums of exchange, “mature technology” is a good thing.

9 anon June 5, 2016 at 6:49 pm

Mature in the sense that we now understand Bitcoin to be at the margin a coal based currency, “mined” in both senses by the politically connected in China who do not pay market rates .. for energy or infrastructure.

So sure, China might rethink how this favor based business affects currency controls.

10 nona June 5, 2016 at 9:35 pm

Re: coal based currency

Someone who is fossilized in coal.

From the article: “Over 80% of new bitcoin are now minted in data centres in places like Sichuan and Inner Mongolia.”

“Inner Mongolia remains the leading province in terms of cumulative installed (wind energy) capacity”

“In the southwestern province of Sichuan, where hydro output rose 19.1 percent in January through April, official National Energy Administration data showed that plants were forced to release water that could have generated an additional 9.8 billion kwh last year had the grid been able to absorb it.”

Poor transmission capacity has made electricity cost near such power stations extremely cheap, and these are the places the bitcoin mines are located.

Outside China, the major bitcoin mines are in Norway (hydro energy) and Iceland (geothermal energy).

11 anon June 5, 2016 at 10:34 pm

That is fairly indirect evidence.

“The cost of coal-fired electricity can be as low as 5c/kWh for industrial users; mining with electricity costs above 10c/kWh is usually unprofitable.”

So do you think isolated green energy sources are rational investments, designed to bring sub 5c power to miners?

Or is someone politically connected again scoring energy below cost? One man’s boondoggle is another man’s bitcoin mine?

12 nona June 6, 2016 at 2:24 am

Fact is the largest bitcoin mine is from,

“BW, a dominant Chinese bitcoin mining company with approximately 8 percent of global mining power, is positioning itself to step out of the shadows of relative obscurity and into the spotlight — a spotlight powered by efficient, clean and incredibly inexpensive hydroelectricity.

A medium size mine documented by photos how they set up a mine next to a hydropower station high up in the mountain,

“BTC mining farm located in the mountainous region of western Sichuan province near Tibet. Using cheap hydro-power and low-cost water-cooling system, this datacenter has achieved high ROI rate with minimum carbon (foot) print.”

They are getting electricity rate of less than USD$0.03/kwh

13 anon June 6, 2016 at 10:34 am

So we have moved from what was a distributed everyman currency (everyone mines, everyone buys and sells) to an argument about which special resource access gives control of the market.

That 3c is not net debt repayment on the Three Gorges Dam.

That is siphoning Chinese infrastructure investment.

14 nona June 6, 2016 at 9:05 pm

So are those in US.

“But Washington has some of the lowest electricity rates in the country—less than 2 cents per kilowatt-hour”

15 anon June 5, 2016 at 11:03 pm

I see Chinese wind energy prices quoted at about .5 Yuan, or 7 cents, per kWh. That would make it 40% higher than coal, if everyone is actually paying, and not bribing.

16 Herb June 5, 2016 at 7:51 pm

“It is consistent with my view that Bitcoin is a largely mature technology, used mostly for evading Chinese capital controls.”

Does this mean you think it’s a relatively useless technology with a limited future?

17 anon June 5, 2016 at 9:14 pm

I heard this week that “blockchain” is now used by men in suits to just mean strong encryption.

To me that means that while not useless, the technology has stopped being different in kind. Functionally, for established organizations, it is just another form of secure exchange.

18 Herb June 6, 2016 at 7:34 am

Sure, the men in suits want to use the blockchain concept in other applications, but they also want to be paid in dollars, not Bitcoins.

19 jorod June 5, 2016 at 8:42 pm

Or maybe they are sick of fraud and don’t trust in Chinese markets…..

20 Bill June 5, 2016 at 9:57 pm

The Chinese should have used Mt. Gox instead:

“Mt. Gox was a bitcoin exchange based in Tokyo, Japan. It was launched in July 2010, and by 2013 was handling 70% of all bitcoin transactions.[1] In February 2014, the Mt. Gox company suspended trading, closed its website and exchange service, and filed for a form of bankruptcy protection from creditors called minji saisei, or civil rehabilitation, to allow courts to seek a buyer.[2][3] In April 2014, the company began liquidation proceedings.[4] It announced that around 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time.[5][6] Although 200,000 bitcoins have since been “found”, the reason(s) for the disappearance—theft, fraud, mismanagement, or a combination of these—were initially unclear.[7] New evidence presented in April 2015 by WizSec lead them to conclude that “most or all of the missing bitcoins were stolen straight out of the MtGox hot wallet over time, beginning in late 2011.”[8]

Do you think the Japanese Central Bank should have bailed out Mt. Gox. Don’t think so. Do you think Chinese banking authorities would ever assist a bitcoin bank.

21 WC Varones June 5, 2016 at 11:28 pm

I think a small allocation to Bitcoin is reasonable. Certainly much smaller than the allocation to gold and equities, obviously.

22 akarlin June 6, 2016 at 2:52 am

Possible connected: Macau gaming revenue falls 34% in 2015

(Macau casinos are of course one of the primary Chinese vehicles for laundering money offshore).

23 Jon June 6, 2016 at 5:44 am

Obviously the Chinese aren’t yet bothered enough to do anything, otherwise they could make individual trading and mining of bitcoin risky.

24 Jon June 6, 2016 at 8:01 am

It occurred to me that the current situation with bitcoin is actually consistent with some elements of Chinese policy. How?

Bitcoin exchange by banks is banned because the Chinese don’t want to encourage a black market.

Bitcoin mining and trading is allowed, because it is merely serving the same function as any other expert industry. To see this. Consider the following:

A resident pays local currency to others to create a a product for export. The product is exchanged for foreign currency.

The product could be mined coal, an I-phone, intellectual property, or bitcoin. The end result is pretty much the same–a resident unloads local currency and obtains investments abroad.

25 zby June 6, 2016 at 8:48 am

There are two other popular explanations for the Chinese BTC volumes:
1) The biggest Chinese exchanges don’t charge fees for trading
2) They probably fake the volumes

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