The Drop in BitCoin Price and the Chinese Factor

The last couple of months were one of the most dynamic periods for bitcoin in 2016. With the launch of the SegWit code into the core network, the price of the digital currency soared over $730 as one of the biggest issues with the blockchain system seem to be heading for a resolution.

The momentum was caught by the general public and mainstream media, which began covering the development in some depth mostly from the trading perspective. But, at the same time, the soft fork solution also got its exposure, which was something that its creators always wanted.

However, at one point, the price of bitcoin dropped by more than 5% in a very unexpected manner. This follows an almost constant rise in price that began in August and went up a gear in the last couple of weeks. In the following hours and days after the drop, a set of theories developed trying to explain what happened. Now, it looks like most of them seem to be pointing towards China.

An Upward Trend Cut Short

For anyone who uses bitcoin, no matter if they employ BTC to bet online or do something else with it, the gain in price was important. It showed that the network was coping with the pressures that were coming its way from a range of sources, in spite of the fact that many lawmakers across the globe apparently decided that pressure on the cryptocurrency was not longer necessary.

But, with the impact of the Ethereum and the newly established Zcash, it was a pleasant surprise to see bitcoin going strong. The same feeling was additionally underlined by the success of the SegWit in its opening days. However, after many weeks in the upward trend, bitcoin price dropped almost 6%.

This happened after reports, all of which were unconfirmed, that the Chinese regulators may come up with measures that are aimed at restricting exchange actives on the domestic market. The news was carried by Bloomberg which provided a report in which Chinese regulators could possibly restrict or even prohibit the bitcoin exchanges in the nation from transferring certain amounts of BTC.

The move would not only cover bitcoin but other digital currencies as well, many of which are strongly represented in the Chinese exchanges.

Assertion of Control

The news was met with a lot of apprehension in the bitcoin community. The possibility of this occurrence was well-known, but at that point, it appeared that it has moved closer to becoming a reality. The Bloomberg article showcases that the authorities in China are worried about its citizens using bitcoin exchanges to buy BTC on the local exchanges and then sell them outside of the country.

This is effectively a way to completely circumvent the nation’s rules on foreign exchange, something which the Chinese authorities take very seriously.

Bloomberg article, which was not at that time posted online, still was taken up by other outlets. Because of that, it soon appeared in publications by ZeroHedge and Sina, which in turn led to BTC price taking a tumble. Completely expectedly, the news was after that in the social media and quickly made its rounds in the cryptocurrency domain, when the selling started.

On the same day, the price of BTC was oscillating in a drastic manner. The highest point was its top price at $744, while the lowest point was at $677. However, the news that was carried was still not corroborated. This is why some believe that the market was taking the opportunity of this report to capitalize on what many believe is a pending market panic.

An Old Story

In spite of the severity of the rumor and the credibility of the news outlet that broke it, many are skeptical. For some experts, the article was just an excuse for traders to engage in selling instead of buying. Others noted that similar events were seen before when fake news coming from China were also used to give wings to speculative activity in the market.

On such particular event occurred in the BTC price climb in 2013 when news broke that the country might completely ban the same digital currency. The same thing then triggered a decline in the markets, while nothing of sorts happened in reality. Because of this, some believe that this is just another element in a line of China scares.

Interestingly, most analysts concluded that these types of rumors continue to persist because of the simple intangible nature of the Chinese government and its departments. This makes the nation into a huge question market in the bitcoin community so no one can tell for certain that something might or might not happen.

Chinese Bitcoin Needs

At the heart of this and many other stories from China when it comes to bitcoin is the same old problem – what does the Chinese state actually want from BTC. Here, there is no simple explanation or a unified answer. From a broadest perspective, it is certain that the Chinese authorities are keeping tabs on bitcoin and any other cryptocurrency operating in their country.

In fact, it could be said that they are watching many blockchain projects with great attention. Their role as a superpower dictates this type of an approach and the value the state places in its cyber divisions across the branches of governments, covering even domains like international eSports.

From a strategic perspective, there is no doubt that China would cherish any opportunity to learn about the upcoming technologies that will be applied in other rival nations. Its military cyber units are working around the clock to get an advantage in any possible domain and cryptocurrencies seems to be one of these.

But, when it comes to the direct application of bitcoin inside of its borders, China is almost certainly worried about the implications of this process. Foreign exchange is tightly regulated in the state, but as it was stated earlier, bitcoin offers a fully operational way around this.

In 2015, when a series of Yuan devaluation took place, a lot of Chinese investors reached out to bitcoin to diversify and secure their assets. The Chinese government will not allow that this takes place in an unregulated manner indefinitely.

Because of this, while the latest drop in BTC price was spurred on by a rumor, there is almost no doubt that the same actual news will one day break in reality. When this happens, bitcoin network can see these false events as a good indicator of the severity with which the market will be shaken. To avert this, mechanisms that can cushion that impact should be explored and implements as soon as possible.