China’s bitcoin crackdown has simply driven trade underground

A paramilitary policeman stands guard in front of the giant portrait of late Chinese Chairman Mao Zedong at the main entrance of the Forbidden City in Beijing, October 28, 2013.REUTERS/Kim Kyung-Hoon

• China banned bitcoin exchanges at the end of last year.
• But the trade has simply gone underground, says the CEO of China’s oldest exchange BTCC.
• CEO believes rules will eventually be relaxed, although not anytime soon.

LONDON — China’s crackdown on bitcoin has simply led to the trading going underground, according to a key player.

Bobby Lee, the founder and CEO of China’s oldest bitcoin exchange BTCC, told Business Insider: “It’s gone underground.

“The point is the demand is there. It’s not like you ban alcohol and you can’t get alcohol — alcohol is physical, you can stop it at the borders. Bitcoin you can’t stop at the borders. You ban all bitcoin but if the demand is there for bitcoin, it seeps through the borders. People are still buying person to person.”

China banned all bitcoin exchanges at the end of last year over concerns about the level of money flowing into the sector. Yuan to bitcoin volumes collapsed from around 90% of the global market to nothing over the last year and BTCC was forced to pivot to bitcoin mining and a mobile wallet product.

Lee said trade is still taking place in a less obvious way. He said: “You have centralised companies who assist the person to person buyers.

BTCC founder and CEO Bobby LeeMatteo Giachetti Photography

“Let’s say you want to buy and I want to sell, [but] I don’t know you. You might go to a real estate broker or a bitcoin broker and say, ‘hey I want to sell’. They’ll say, ‘ah! I know exactly who wants to buy some’. Then they introduce us and we pay them $500 as a commission and then I just buy from you.

“It could be done person to person offline, it could be online. It could be on a platform — I say my name is Bobby Lee, your name is so and so.”

While Lee asserts that bitcoin trade is still active in China, he says volumes have trailed off.

“It’s probably not the same scale because the previous way, it was not just trading but also speculating,” he said.

“In this new underground trade you’re buying from me and you have to go through some process. You have to hold it for a few days or a few hours or a few weeks.

“The other way, you buy, you literally sell it a few seconds later or a few minutes later. The friction was lower. There was much more liquidity, much more action. Now there’s a little bit more friction, volumes are down a little bit.”

Lee is optimistic about the prospects of legal bitcoin trading in China in future.

“I’m 43 years old this year and what I’ve realised is, in this world that we live in, nothing’s permanent,” he told BI.

“In China, where we thought the one-child policy was forever, that changed. Whether it’s foreign currency controls or bitcoin exchanges in China, these rules are likely to not stay permanent for the next thousand years. Does that mean it’s going to change next month? No. But it could change in 10 years. It could change in 30 years. Nothing is permanent.”

Lee was speaking to BI at London Blockchain Week, where we also discussed the effect of the Chinese crackdown on his business and his view on ICOs.