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Chinese investors feed bitcoin frenzy
12/5/2013 12:06:43 PM
- Analysts: Bitcoin value is being fueled by voracious Chinese investors
- Since June has jumped from 700 yuan ($115) to 7,000 yuan ($1,149)
- 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. If only he held on a little longer -- 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.
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
Digital currencies are not officially recognized as legitimate by the Chinese government. Yi Gang, deputy governor of the People's Bank of China said that it would be "impossible for China's central bank to recognize bitcoin as a legitimate financial instrument in the near future" at a forum last Wednesday.
But Yi also added that people are free to participate in the bitcoin market. And he thinks the idea of bitcoin is interesting and would personally keep an eye on the currency from a long-term perspective.
The remark is seen as a positive sign. And as its popularity grew, shops and companies are starting to accept bitcoin for payment. Baidu, the leading search engine in China, now accepts the currency for certain services.
Beijing's laissez-faire approach to bitcoin contrasts with its rapid move to squelch another digital currency -- QQ from China's Tencent -- in 2009.
"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 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."
Ron Paul: Bitcoin could 'destroy the dollar'
Despite his past gains, Liu is sitting out the current bitcoin boom.
"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.
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