Over the course of just two weeks, China’s ICO ban and the announced closure of cryptocurrency exchanges put a significant dent in bitcoin. The price of the world’s most popular cryptocurrency fell from an all-time high of nearly $5,000 to just south of $3,000. Likewise, its market cap plummeted by nearly $30 billion, a dramatic swing that can be partially attributed to the price drop itself. The looming closure of China’s cryptocurrency exchanges resulted in lower volumes and global trade remains volatile, but cryptocurrency has proven its resilience once again. Ultimately, a decentralized world economy is far more powerful than a single nation-state.
On September 2, 2017, the bitcoin market cap reached $81 billion. On this date, the closing price for bitcoin was $4,578 – and bitcoin reached a high of $4,975 during the day. Business was booming! But two days later, on September 4, 2017, the People’s Bank of China, in conjunction with other Chinese regulatory authorities, announced an outright ban on ICOs (token offerings).
As news spread, the market cap of bitcoin and its price shook. By September 5, 2017, $12 billion of value had essentially disappeared into thin air. Now, the global market cap stood at $69.9 billion and the closing price was $4,376 (a good deal lower, but nowhere near fatal). Over the next week, the price of bitcoin hovered in the mid-4000s before declining a bit more.
Then, on September 15, 2017, two of China’s largest bitcoin exchanges – Huobi and OKCoin – announced that they would soon end trading at the demand of government authorities. In the wake of their announcements, the bitcoin market cap fell precipitously to $52 billion (just 24 hours earlier, it had been $64 billion, so this was yet another $12 billion drop). Simultaneously, the volume of bitcoin exchange hit an eye-popping $4.1 billion – likely a result of Chinese traders rushing to dump their positions. Typically, in August 2017, global bitcoin volume had been in the high $1 billion or mid-$2 billion range, so the $4 billion trading volume on September 15 was an obvious outlier.
Surprisingly, the bitcoin market cap has quickly bounced back to the level it was at before the announcements of exchange closure. As of September 21, 2017, the market cap had already returned to $64 billion. A closer inspection of the data, however, demonstrated that the global volume of bitcoin trade has diminished since the Chinese exchanges announced their impending closure. Now, global bitcoin trading volumes have returned to their pre-August levels (around just $1 billion per day).
A little over a month ago, Chinese exchanges represented about a tenth of the total bitcoin market. On August 14, 2017, Chinese bitcoin exchanges accounted for 11.47% of the global volume traded over a 24 hour period. Today, September 22, 2017, operational Chinese exchanges account for just 4.41% of global daily exchange. China’s bitcoin exchanges aren’t the big-time businesses they once were.
This has been a strange recovery – if we can call it that. There are so many factors at play, and to be fair, the availability of data can limit analysis. What’s certain is that the market cap of bitcoin has rebounded, and so has the price of bitcoin (notwithstanding Chinese markets, which CoinMarketCap frequently excludes from their price data). Most remarkably, China’s once-substantial bitcoin trade is about one-third of what it was a few weeks ago. Despite China’s ban of ICOs and threats to end domestic bitcoin exchange, the strangulation of Chinese cryptocurrency markets did little to damage the world’s cryptocurrency ecosystem.
Perhaps, limitations on Chinese capital movements prevented a more dramatic global downturn. If bitcoin exchanges in China were available to international customers (note: KYC and residence requirements amount to economic segregation), surely the drop would have been much more pronounced. In all though, the Chinese government’s crusade against cryptocurrency has been ineffective. Decentralization helped bitcoin live to fight another day. The dragon might be sleeping, but Satoshi Nakamoto’s invention is nothing if not resilient.