Bobby Lee of BTC China Explains Why China is #1 for Bitcoin

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At the Inside Bitcoins conference, BTC China CEO Bobby Lee explained why China is so hot on Bitcoin and shed light on the implications of the recent regulatory statements made by the Chinese authorities.

Looking back at the last 3 to 6 months, BTC China has quickly become the leading Bitcoin exchange in the world, surpassing Mt.Gox, Bitstamp and other exchanges.

Much of it is cultural, explained Lee.

First, China is a nation of savings. In the US, the national savings rate is less than 10% of GDP, while in China, the rate is upwards of 35% to 50%. Bitcoin, as a virtual commodity, presents an opportunity to store value and preserve purchasing power. This is novel, and Chinese citizens are eating it up.

China is also a nation of engineers. The leadership of China, from Jiang Zemin to Xi Jinping, all have educations in engineering from elite Chinese universities. Generally speaking, at the upper ends of Chinese society, indivudals are more likely to have a tehcnical educational background versus Western coutnires. This lends itself to an environment in which the upper rungs of the socioeconomic ladeder are more comfortable with a technical commodity like Bitcoin.

“I guess in the US, they are all lawyers,” Lee joked.

Bobby Lee BTC China On Bitcoin

These cultural factors have led to a herd mentality of buying Bitcoin at large volumes. Lee said that his exchange has reached 150,000 Bitcoins per day in trading volume and he is expecting a 100X increase next year.

Regulatory Landscape in China is Open to Bitcoin

On December 5, the People’s Bank of China published a notice clarifying the legality of Bitcoin. Banks were banned from owning and trading Bitcoin in this notice. The price of Bitcoin crashed on this news and related activity in China.

Lee, tongue-in-cheek, said he was on a plane when the announcement from People’s Bank of China came out. He went on to explain the implications of the notice.

En masse, the press wrongly published that Bitcoin was banned or made illegal. “That’s not the case,” said Lee.

Yi Gang, Vice Minister of the People’s Bank of China (China’s Central Bank), articulated 3 statements:

  1. The central Bank is not ready to recognize Bitcoin as a legal currency in the near term.
  2. However, Bitcoin trading is a legitimate form of online buying and selling, and everyone should be free to participate.
  3. Bitcoin’s unique characteristics and said the development of the digital currency was inspiring and he will keep following it.

The implications as follows:

Bitcoin is not a legal currency and will not be regulated as a legal currency. Instead Bitcoin will be treated as a virtual good or virtual commodity.

Further, Bitcoin buying and selling constitutes a form of online commodities trading and individuals are free to participate so log as they are willing to assume the risk.

That means that goods and services cannot be paid for by Bitcoin. “Think of Bitcoin as eggs in the supermarket,” said Lee. “It’s not a currency.”

In terms of regulatory compliance, Bitcoin Exchanges must comply with relevant AML (anti-money laundering) and KYC (know your customer) regulation. Websites whose primary business is Bitcoin trading must register with the telecommunications authority.

So the restrictions are actually limited to certain types of organizations. Chinese insurance companies cannot provide services to trading firms. Financial institutions and payment institutions cannot conduct transactions or price goods or commodities in Bitcoin and cannot act as a central counterparty.

“Certain business models will not work in China,” said Lee.

The Road Ahead for Bitcoin in China

Given the dramatic increase in trading volumes at BTC China, security is important. Close to 90% of Bitcoins are held in cold storage. Fiat currency is held outside of BTC China’s reach with other parties.

BTC China also proactively implemented an additional layer of KYC, requiring internationally verifiable forms of identification.

Malcolm CasSelle, CEO of Timeline Labs and an investor in BTC China, took the stage after Bobby Lee to explain how BTC China is pioneering new regulatory perspectives and where Bitcoin companies fit in.

Authorities are still trying to understand how Bitcoin businesses fit in with the regulatory framework, said CasSelle, especially because of the volumes flowing in.

“BTC China is the equivalent of a noodle stand from the regulators perspective, so why does he have 10 million RMB this month,” said CasSelle. He explained that the window is still open for multi-billion dollar businesses to grow in the current regulatory environment in China.

CasSelle also highlighted that mining is alive and well in China.

“Mining is insane”, said CasSelle. “I can’t tell you how many Bitcoin millionaires I’ve met. They are pretty funny characters. They like having a machine in their basement that spits out money.”

In the next 90 days, expect to see major activity in ASIC mining for Litecoin, said CasSele.

There are also threats to the Bitcoin ecosystem. Bad actors — theft, money laundering, and drugs for example, brings regulatory reactions which can be stifling to adoption. Also, fragmentation of crypto-currency and the emergence of alternative coins will slow down growth of Bitcoin.

At the same time, volatility and investment losses can cause bad publicity.

 

Thanks to Bobby Lee and Malcom CasSelle for a great presentation!

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5 Responses to Bobby Lee of BTC China Explains Why China is #1 for Bitcoin

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