Is The People's Bank Of China Manipulating The Bitcoin Price?

Tyler Durden's picture

China’s dominance of the bitcoin network is incredibly concerning to the digital currency’s techno-libertarian purists, who fear that the concentration of mining power in the world’s second-largest economy is threatening to subvert bitcoin’s democratic nature. With more than half of the network’s hashing power resting in their hands, giant Chinese mining pools like AntPool, Bitmain and the other massive bitcoin-mining conglomerates can effectively monopolize control over the bitcoin blockchain.

Given bitcoin’s stated aim – to bypass the authority of central banks and governments and return control of the world’s money supply to individuals – many have noted the incongruity between the currency’s democratic aspirations, and the Chinese government’s apparent willingness to tolerate, and even nurture, the country’s bitcoin industry.

“Bitcoin Uncensored” explained one theory for the Chinese government's embrace of bitcoin: The People’s Bank of China is using its jawboning powers to manipulate the price of the digital currency to benefit politically connected elites.

“The CCP is not out to kill bitcoin – at least not right now. Since China can have such a huge impact on the price of bitcoin, why wouldn’t the Chinese government use this power to its advantage? Chinese government regulators can, in theory, exert a huge influence on the global price of bitcoin. So, if you own bitcoin, well, the value of your money can be heavily influenced by the whims of the world’s largest authoritarian regime.”

As the theory goes, the massive swings in bitcoin’s valuation witnessed back in 2013 were engineered by the PBOC when authorities prohibited local financial institutions from dealing in the digital currency. In early September of that year, one bitcoin was worth $100. By late November, the price had ballooned to $1,000. Then the price came crashing down seemingly overnight. Chinese authorities were widely blamed for the drop, which created what should’ve been an incredible buying opportunity.

But whatever the PBOC’s plans might’ve been, they were disrupted by the collapse of Japanese bitcoin exchange Mt. Gox, which ushered in a bear market that endured until late 2015.

However, more than two years later, Chinese authorities again resorted to jawboning to influence the bitcoin price when they announced in January that they were investigating the country’s digital currency exchanges. After forcing the three biggest exchanges in the country, BTCC, Huobi and OKCoin, trading volumes in China dissipated and the price fell – though not by as much as in 2013, creating yet another buying opportunity. But the time withdrawals were reinstated four months later, the digital currency had climbed to all-time highs, driven largely by an influx of Japanese and South Korean retail investors who have been enticed by the promise of exponential returns during the modern low-interest rate environment.

Of course, Chinese authorities have plenty of other reasons to try and control the bitcoin market. Here’s BU with more:

“So why has the Chinese regime been targeting bitcoin other than it being a democratic currency? There are a few reasons. First Chinese people can use bitcoin to get their money out of China. The Chinese regime has limits on the amount of foreign currency people can buy. But Chinese investors can buy bitcoin in China then later exchange that for foreign currency in any amount they want.

 

Huge fortunes that might be made through corruption could be safely stored out of reach of China’s pesky investigators. That is why China’s central bank started investigating bitcoin exchanges back in February, and threatened to shut down exchanges that violated rules on foreign exchange payments and settlement. That was why China’s central bank started investigating bitcoin exchanges back in February and threatened to shut down exchanges that violated rules on foreign exchange management, money laundering and payment and settlement.

To be sure, it’s unclear how much money is being moved out of China through bitcoin. Bitcoin transactions in China are not anonymous since you have to link a Chinese bank card to your bitcoin account. You could move a few thousand yuan, but large amounts would attract attention.”

Should it choose to use it, Chinese authorities have at their disposal what BU describes as “the ultimate sword of Damocles.”

“The Chinese government has the ultimate sword of Damocles over bitcoin operations in China. Chinese regulators could crack down on bitcoin by classifying it as a foreign currency which would limit individual transactions to $50,000 a year.

While the Chinese government could easily crush the bitcoin market, it hasn’t because that would allow miners in other countries to usurp its dominance – something the PBOC might find difficult to undo. China is home to between 50% and 70% of the world’s bitcoin mining operations, BU reports.

Below is chart illustrates the bitcoin network's hashrate distribution by mining pool. As the graphic clearly shows, Chinese pools control more than half of the network's power, though the exact percentage is in constant flux because miners are constantly competing to process the next block of transactions: (source: blockchain.info)

Instead of cracking down on the mining community, the Chinese government has been effectively propping it up by supplying its miners with cheap electricity.

Major bitcoin mines in China’s northwest are being given access to government supported low cost wind and solar power. Powering the computer servers needed to mine digital currencies is one of the biggest financial challenges that bitcoin miners face. The PBOC’s logic here is easy to spot: The more bitcoin miners who set up shop in the China, the greater the control the PBOC exercises over the global bitcoin market.

Lingering fears of a crackdown have only served to benefit the government’s position. As BU explains:

“A lot of people feel they should buy as much bitcoin as they can right now, which will of course further drive up the price, possibly making officials very rich.”

****

After bitcoin plunged to a two-week low earlier Thursday, CNBC and a handful of other media organizations blamed the latest drop on a trifecta of reasons ranging from cyberattacks to new regulations that are presently being debated by US Congress. An outline of their reasoning can be found below:

Cyber attack

As CNBC reports, major bitcoin exchanges were hit with multiple cyberattacks this week. Bitfinex, the largest U.S. dollar based bitcoin exchange, announced it was under ‘distributed denial-of-service’ attacks (DDOS) which slowed the service down.  The attacks come at a time when consumer interest in bitcoins have also led to heavier than normal traffic on the exchanges, compounding the attacks.

Platform upgrade

On August 1st, the bitcoin platform will be undergoing a protocol upgrade labeled BIP148, meant to solve the block size debate – an argument over the size of bitcoin’s ‘blocks’ (a record of transactions on the public ledger – the ‘blockchain’). The planned improvements are supposed to help ‘scale’ bitcoin for future growth, lower fees, and speed up transaction times –  however the upgrade is not without risks, and the Bitcoin community is divided.

Inclusion in Anti-Money Laundering Bill:

Last but not least, Senators Chuck Grassley (R-IA), Dianne Feinstein (D-CA), John Cornyn (R-TX) and Sheldon Whitehouse (D-RI) have co-sponsored bill S.1241 (Combating Money Laundering, Terrorist Financing and Counterfeiting Act), which adds language to existing anti-money laundering provisions to include digital wallets, prepaid access devices, and other ‘digital currency exchangers’ if they contain over $10,000 of cryptocurrency. Also included in the bill are cell phones, flash drives, and computers containing information on holdings which will need to be declared and reported upon entry into the U.S. In other words, the notion of using digital currency to transact anonymously will become much less attractive if this bill is signed into law.

Demand for cryptocurrencies has skyrocketed over the last few months, beginning with Japan recognizing bitcoin as legal currency in April. Other countries including South Korea and Malaysia are reportedly set to follow suit.

Chinese leader Xi Jinping has vowed to combat corruption among China’s business and political elite – a crackdown that recently led to the detention of the CEO of Anbang, China's hyperacquisitive insurance conglomerate. The company has been blamed for a sizable portion of China's merger spree between 2014 and 2016, and which has since been accused of being a money laundering vehicle, of wreaking "havoc" with the Chinese insurance market.
 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
EHM's picture

Looked at Bitcoin on google trends today. The location breakdown was interesting.

The_Juggernaut's picture

There's going to be some butthurt in these comments.

Mango327's picture

"Come at me, bro."
- Cryptos

IS THE DEEP STATE ATTACKING BITCOIN?
https://youtu.be/PICJk9hz7mw

Laowei Gweilo's picture

of course China is

i dunno about directly like the article says

but clearly Xi Jinping is indirectly allowing for Bitcoin volume to soar as a way to either help Xi Jinping-party officials get money out of China AND try track Bo Xilai-party officials

if Bitcoin volume OR price goes up in China it's because Politburo has an agenda...

 

they're control freaks over the Renminbi; anyone really think they'd just let an alternative currency run freely lol

Art Van Delay's picture

Only lefturds amass bitcoin.

Then poof... it's gone. 

Suckers.

MANvsMACHINE's picture

My gold is at the bottom of a lake but my bitcoin is stuffed up your wife's hoo-ha. No one will ever find it there.

CJgipper's picture

I was wondering whose bitcoin that was.

fx's picture

What a boatload of uninformed bs this article is!

Hint: it helps to have owned and used BTC  (or ETH or any of those) to understand the subject before writing embarrassing nonsense about it. Talk about the blind lecturing us on colors!

Just a few points: BTC's market cap is about 40bn $; if half of that was recently created in China that means about 20-30 bn$ equivalent  in BTC could have been used to get money out of China, at a maximum. A whopper, given the trillions involved there. And as the author himself said, it's not anonymous in China

Then, these mining farms in China offer their service to people worldwide. Have already used it myself. Guess what happens once they allocate these BTC and ETH to me? I move them into MY wallets and from that moment no PBoC or CCP or FED has control about those. ZERO.

At best you could argue that Bejing is indirectly helping that the majority of BTC is created in China and owned by Chinese - for the moment at least. But once it is there (once the blocks exist) you don'T really exercise control. All you can do ist decide whether and what for you may spend those BTC. You could as well say millions of Anericans "control" the dollars they own.

It is akin to claiming that by allowing Foxconn to grow, China now controls who is going to own an iphone  and how he is using it. It's ridiculous.

enough said.

DirtyWilly's picture

Even finanical publications are starting to admit Bitcoin will make bank runs possible, not metals.

 

When the SHTF you're not going to buy your neighborhood block for an oz of gold, it's not going to happen.  What will happen is libtards that can't afford food will still be attached at the hip with their iPhone using crypto.  They wouldn't even know what to do with metal if you handed it to them.  (Satire videos on YouTube proving this.)

GubbermintWorker's picture

In a true shtf scenario the libtard's iphone isn't gonna work. What about his bitcoin then? And.....it's gone!

Exponere Mendaces's picture

You sure won't see some moron with a scale accepting gold for food and water.

Nobody is going to have a personal assaying kit around to verify purity, are they? They sure as fuck aren't going to take your word for it that your rounds are authentic.

No, they're going to eyeball the stash that you have of food and water, then execute the most direct way of liberating you from your supplies.

Disasters don't spur gold trading, they cause rational people to behave like crazed animals fighting for resources.

The gold stackers here are severely delusional. They fork over money to governments and licensed coin dealers (who snitch to the govt about your purchases), and then think they are "sticking it to the man" like some angsty teenager.

Right dude... LOL

 

noless's picture

They have the blueprints, they have the specs, who says what's in it doesn't vary.

Jubal Early's picture

Andrew Gauss at Real World of Money was discussing Bitcoin on Tuesday (every tuesday, great podcast):

https://oneradionetwork.com/all-shows/andrew-gause-real-world-money-june...

He said that FED Member Banks (practically all of them) cannot allow Bank accounts for Marijuana Growers because it is still illegal by federal law.   This means that in Colorado, California, Washington that pot shops cannot accept credit cards and all transactions are in cash or in BITCOIN.  I assume the same would apply for legal Marijuana growers.  He also pointed out that one can buy bitcoin with a credit card and then go down to the shop and buy pot with BTC on credit.

This demand is probably one of the big reasons bitcoin ever got off of the ground, and it illustrates how the Government through a simple change in legislation can make or break any competing "currency".

explosivo's picture

It's an interesting point, but I don't think that is the reason why bitcoin is succeeding. Bitcoin is succeeding because it is legit, stable currency during a period of hyperinflation in the reserve currency. The pot issue is so small compared to this. 

Jubal Early's picture

"stable currency"?  Are you that blinded by greed?

Exponere Mendaces's picture

Yet-another-proponent of the "drugs built Bitcoin" meme, eh?

Right.

You guys are so out of touch, its amazing you have the neural power to tap on a keyboard to share your "thoughts" with us.

There was no "drug trade" in 2009, when Bitcoin started.

Silk Road was started in 2011, by an idiot with poor operational security. A full two years later, mind you. But you want us to believe that every transaction was based on drugs, right?

Complete idiocy.

 

dark pools of soros's picture

You mean left in dust stackers still wondering when $2000 gold will ever happen while bitcoin owns your bitch ass

Xena fobe's picture

Currency controls are for show.  Maybe they enforce it on a few poor people so they can say, "look, we have currency controls".

Meanwhile the elite are getting their wealth out as fast as they can.  The government is also probably dumping dollars to buy hard assets in the west.

There is no way in hell the millions of Chinese millionaires in the US transferred their wealth out in compliance with currency control laws.

Dirtnapper's picture

BTC is not going to impact CNY as a local currency (they will be using Enterprise Ethereum for that).  What China (who is pushing RU and IN into accepting BTC) is aiming at a "steerable" reserve currency to replace the USD.  BTC is decentralized so no jackoff country can inflate it to death, yet CN has the most BTC owners and miners so it gives them some degree of control over the currency. This also will be the kiss of death to SWIFT as well as global banking cartels. 

If you really want to know what the insiders in BOC are thinking about BTC: http://www.coindesk.com/former-peoples-bank-china-official-give-cryptocu...

 

 

 

xtremers9's picture

Bitcoin is an asset people. it's not a magical currency that's "free from the evil government". bitcoin is in a bubble. welcome back to reality.

Jim cramer's comment that bitcoin will go to $1 million is laughable at best.

 

http://markethistory.org/bitcoin-is-a-ridiculously-overvalued-asset-its-...

fx's picture

Ok, so BTC is " in a bubble", I am sure you can tell us what the true or intrinsic value of BTC is and why so? Would be keen to hear it because to claim  it is grossly overvalued requires to say what the real or true value is. Oh, probably, you will tell us it's zero? So then, what's the dollar's true or intrinsich value and why?

And now, how then can be BTC grossly overvalued compared to the $? Inquiring minds would want to know....

A82EBA's picture

in 2014 they said stocks were in a bubble

xtremers9's picture

Bitcoin is an asset people. it's not a magical currency that's "free from the evil government". bitcoin is in a bubble. welcome back to reality.

Jim cramer's comment that bitcoin will go to $1 million is laughable at best.

 

http://markethistory.org/bitcoin-is-a-ridiculously-overvalued-asset-its-...

3rdWorldTrillionaire's picture

What better way than to extinguish "wealth" in an instance... yuan, be gone. Supply down, demand up!

Silver Savior's picture

I have more faith in Ether than Bitcoin or the stock market!

tmosley's picture

Yeah, I'm not even holding any BTC at this point. Too risky given the probablilty of a hard fork. Might dip my toe in if it turns out to be a soft fork.

Canadian Dirtlump's picture

It's been an unarguable win to this point. I still incoveniently ask such questions as what stops anyone from making an infinite number of similar crypto currencies and what does that do to the vaule of bitcoin - and perhaps more interestingly what does the advent of quantum computing bode for the mining and security of crypto currencies.

tmosley's picture

If the cryptography protecting cryptos is broken, you have bigger problems, because that means the crypto protecting the banks AND the crypto protecting the nuclear weapons has also been broken.

That said, there are some coins that are claiming to be secure against quantum attacks. Dunno if that is real or not.

Ignatius's picture

The more important point is that BTC is a currency that facilitates trade outside the debt based central banking currency system.  BTC is initially "mined" so it is not debt based.  If it functions over time as a store of value then all the better.

dasein211's picture

So does china really not understand you can go wallet to wallet without an exchange? Why do people think they need exchanges inTHEIR country. Just send it to a private wallet or cold storage!!! AS LONG AS YOUR WALLET IS NOT ON AN EXCHANGE IT IS PRIVATE!!!!

RawPawg's picture

Um...Should I Be Worried About All These Silver Nuggets?

You Know....The Ones I'm Holding....In My Hands!!!!!!!

sleigher's picture

Silver is 16.75 spot and a guy I know wants to sell off all his 10 oz bars.  He asked me for contact info for a reputable buyer.  I told him bring it all over and I will be glad to take it off his hands.  After I told him he is foolish to sell.  I like the guy.  But if he has to sell then I will be glad to buy it. 

 

tropicthunder's picture

Wow what a steal! Yeah let's load up on some more beaner gold with the same price that is was at 9 fucking years ago!

Gold and Silver remains a wet dream for the hopeless. Meanwhile, Chinacoms and GeekSquads are making millons on mining farms and daytrading massive swings in BTC and ETH.

Fuck yeah go silver!!

 

 

sessinpo's picture

I've changed my attitude regarding other people's speculation or investment in bitcoin, precious metals, or whatever. 

IT'S NONE OF MY DAMN BUSINESS WHAT OTHERS DO WITH THIER CURRENCY!  Who do I think I am, the government or something?

any_mouse's picture

Agreed.

If you want to speculate in bitcoins or gold, go for it. Keep it to yourself.

Sometimes I get the feeling there is a lot of pumping going on. Maybe bitcoin speculators feel insecure about bitcoins.

Pump and ...

Silver Savior's picture

Why would I want beaner gold to do well?I am trying to stack beaner gold cheap. Do you like to buy investments when they are high? Just listen to yourself. Dude it's good the price is low!

Blue Dog's picture

Right. You can buy silver for what it cost 9 years ago. Silver reserves are only 9 times gold reserves yet the silver to gold price ratio is 70 to 1. Once price suppression ends silver will trade for $200 an ounce or much more.

Sure, the Chicoms make money mining Bitcoin but you can't. Bitcoin is going to split. It's losing market share to Ether. Bitcoin's best days are behind it.

 

Silver Savior's picture

I was in the pawn shop today buying silver while these two older guys were selling silver. They just had a bunch of 90%. The pawn shop gave them a lousy deal but they told the pawn shop guy that it was more money than they thought. 

I took my coin purchases and just left trying to figure out what is going through people's minds. Older people should know better. Could be grocery money. I won't judge. Lots of poor people around my town.

DC Beastie Boy's picture

Good thing there's hundreds of other competing cryptos.

There's thousands of CCs now, many are not even traded.

When this shit show blows, you may find your BTC worthless and some other crypto you've never heard of worth billions.

Bitchezzz

Silver Savior's picture

Ethereum will be worth billions! Just in time too. I can use the money.

Exponere Mendaces's picture

This is like saying because there are hundreds of businesses, it means that all business will fail.

You have no concept of how this ecosystem works, and it shows.

Maybe ask Tyler to write an article, you're about the level of "quality" they love for clickbait Bitcoin articles.

besnook's picture

bitcoin is the nail that is sticking up. it will be nailed down. bitcoin is anathema to the banking and police state.

AtATrESICI's picture

or just long W-18.

roisaber's picture

Connected boys doing some jaw-jaw to scare it down so they can manufacture a buying opportunity. It's smart, I'll give them that.

Twee Surgeon's picture

You would have to be off your fucking rocker to buy Bitcoin with Federal reserve notes.

Federal Reserve notes have Aircraft carriers and Army dudes behind it and Bitcoin has some Vague internet Asian thing behind it.

I will Gladly deal i8n Cans of Corned Beef before a Dime of mine goes toj the Magical , Hopefull Village.

The Grand Scam is Epic to watch, but seriously, no Reply or Complaint loss ? Are you fucking kidding.

Chickens are a better investment. Fucktard City. BUt... But....

seek's picture

FRNs also have the debt used to pay for the aircraft carriers and army behind them, too. Changes the equation a bit.