Satoshi Nakamoto is known to be the pseudonym of the creator, or creators, of Bitcoin, under which name the first papers on the cryptocurrency was penned backed in 2009. It has always been a mystery as to why the incognito originator chose to adopt a Japanese persona, but it seems that the link between Bitcoin and Japan is growing stronger – especially after China’s clampdown in September.
To purge the use of cryptocurrencies domestically, Beijing first outlawed initial coin offerings (see WiC379) and subsequently shut down trading floors that enable the swap between the decentralised crypto-assets and the renminbi. The Chinese authorities see such trades as scams with considerable potential to upset China’s stability – both financially and socio-politically.
At a recent financial forum in Shanghai, Pan Gongsheng, deputy governor of the People’s Bank of China, defended the central bank’s move. “The market can remain irrational longer than you can remain solvent,” said Pan, borrowing an insight from French economist Éric Pichet. “Sit by the river bank and see Bitcoin’s body pass by one day,” he predicted.
Trades paired with China’s fiat currency declined from around 90% of the global Bitcoin market in December 2016 to 0% in November 2017. The greenback and Japanese yen immediately picked up the slack, with the latter seizing nearly 60% of the market at one point.
Japan’s more amicable regulatory environment apparently buoyed the uptick in yen-to-Bitcoin trades. In April the country gave Bitcoin and Ethereum legal status as a means of payment for goods and services. One local company – GMO Internet Group – had already offered to pay salaries partly in the form of digital tokens. The Tokyo Financial Exchange is also preparing to list Bitcoin futures in the footsteps of CME Group.
The new market dynamics has led Beijing-based Huobi Group to forge a tie-up with Tokyo-based financial services conglomerate SBI Group. Formerly one of China’s “Big Three” cryptocurrency platforms, Huobi is planning a comeback in 2018 with two new virtual currency exchanges in Japan.
Pan said he would be “scared” if China continued to account for the lion’s share of the Bitcoin market, which is experiencing increasingly wild swings. But some believe that China is the one country that could halt Bitcoin’s growth – because the Bitcoin’s production system is vastly exposed to China (see WiC369). Research by the security company Hacken and Gladius found that nearly 78% of Bitcoin mining has been concentrated in China, where electricity is relatively cheap (see WiC380). The majority of the specialised hardware for such mining is also made in China, with Ordos-based Bitmain being a major player.
And yet again there was signs of trouble for the cryptocurrency in China this week. In a meeting on Wednesday the central bank decided to curtail power usage by China’s Bitcoin miners, reports the South China Morning Post, meaning fewer new Bitcoin might be produced.
© ChinTell Ltd. All rights reserved.
Brought to you by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.