For fortune hunters, bitcoinis more than a bit frustrating
Print Edition
JASON Yu, a 27-year-old mobile app developer, made a fortune and then lost nearly half of it within 10 weeks. It may not be an unfamiliar fortune story in China, but the medium in question is a bit out of the ordinary. Yu staked his investment on bitcoins.
“What do I do with my bitcoins?” he asked during an interview with Shanghai Daily. “I have great faith in its future, but in reality, I’ve been losing money. Furthermore, I can’t really buy any non-virtual thing here with this so-called virtual currency.”
Currency? That’s not how China and the United States, that together account for more than 90 percent of bitcoin trading, define it. Central banks in the two countries call the bitcoin a commodity. Those in the bitcoin-related industry prefer to call it “digital gold” because its value is somewhat based on how much of the currency is “mined.”
Yu is hardly the only one in China wondering how an innovation of the digital age has so quickly gone from boom to bust. While some optimists promote the idea of bitcoins becoming the world’s only currency, he and others are struggling to figure out its basic use. Now that the get-rich-quick dream has somewhat faded, what else is there to do with a bitcoin?
“The price now is more rational and stabilized, and that is a good thing,” said Patrick Dai, chief operating officer and co-founder of BTC China, the largest bitcoin exchange after Tokyo-based Mt Gox went bankrupt earlier this year.
“It is a virtual currency and currency has two functions — accumulation of wealth and payment for goods and services,” he said. “We have all seen the first function of the bitcoin; now it’s time to focus on the second.”
The cyber-currency first appeared in 2008 and quickly accumulated followers in the United States, ballyhooed by hype about its independence from ownership by any nations, organizations or individuals.
In early 2013, a short documentary about bitcoins that aired on China Central Television helped give the new currency a kickstart here. It was a natural match — a currency that promised quick riches and a country full of people enthusiastic about accumulating wealth.
Then, too, the bitcoin was popular among many because it can be exchanged into any foreign currency with a relatively low transaction fee. That is an attraction in a country where individuals are limited to US$50,000 in overseas transfers.
When Shanghai-based BTC China was founded in 2011, each Bitcoin was worth about 20 yuan (US$3.20). By 2013, the price had shot up to a record 8,000 yuan, with an estimated 10 million people holding the virtual currency.
Shortly after, came the plunge. In December 2013, the People’s Bank of China announced regulations on bitcoins. The regulations required bitcoin exchanges to be licensed and forbade banks or third-party online companies from engaging in bitcoin-related businesses. Banks pulled out of the business in March and April. The price further dropped.
The bitcoin has fallen about two-thirds from its peak price to around US$350.
“The bitcoin in China was a victim of its own success,” Zennon Kapron, founder of consulting firm Kapronasia Shanghai and author of the recently published “Chomping at the Bitcoin,” told Shanghai Daily. “There is limited room for the virtual currency to develop further in China because it never moved beyond a speculative tool. It needed to be something that people used for everyday transactions.”
Internationally, the bitcoin can be used to buy some products and services, from a cup of coffee to an entire apartment. In China, the transition to a payment medium is only now beginning.
Kapron counted 45 companies that accepted bitcoin payment in China, often as part of the marketing strategy to boost sales of bitcoins. Many that were accepting payments, including an apartment block in Shanghai’s Pudong New Area and a charity organization founded by action star Jet Li, stopped the practice after the new regulations came into force.
Alibaba, the largest online e-commerce platform in China, has blocked the search for bitcoin payment or bitcoin-related products, though a handful of shops on its online shopping site still list it as a payment option.
“It’s become a gray area,” said an Alibaba retailer surnamed Lu, who sells electronic products including bitcoin mining machines and still accepts bitcoins in payment. “Nobody says you can and nobody says you can’t, like so many things in China.”
Lu added, “Every month, I get a handful of transactions in bitcoins, but more than 95 percent of those are related to the mining machines. In total, I think I’ve had less than 10 customers using bitcoins to buy other products, like mobile phones.”
In November, BTC China launched a bitcoin payment service called JustPay. It allows users to purchase products from baby milk powder to clothing on shopping sites that accept JustPay.
“It was quite difficult to get these partners on board because the whole issue has become so controversial in the last few months,” Dai said. “But we have attracted quite a few sites, and the sales results in less than a month have exceeded expectations. Ultimately, the virtual currency and legal tender are not rivals, but rather complementary payment systems.”
Yu is holding tight on the last few bitcoins he has. They are now worth about 75,000 yuan, two-thirds of his savings. He said he is hoping the price rises again.
Dai and fellow bitcoin aficionados seem convinced that the bitcoin system will become more transparent, recognized and more functional as a payment method, particularly where cross-border payments are concerned.
Kapron said he sees “its evolution and current status in China as an excellent case study” for the survival bitcoins in other countries.
“Ultimately,” he said, “the vision of bitcoins becoming an internationally accepted alternative to fiat currencies is not possible without China.”
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