Last week, reports surfaced that China will be banning initial coin offerings (ICO), a new way of financing startups developing on the blockchain, the technology that underpins cryptocurrencies. This draconian enactment caused the price of BTC and ETH to take a 21% and 32% hit respectively.
A few days later, the nation sent further shockwaves throughout the crypto industry as rumors surfaced that all cryptocurrency trading would be banned and exchanges based in China would be forced to cease operations. The crackdown caused panic amongst crypto traders as the price of BTC plunged from over $4,970 USD to as low as $300 and ETH from $395 to $200.
This is not the first time that China has announced its intentions to outlaw digital currencies. Most notably, in 2013, China banned its banks from handling Bitcoin transactions, although it did stop short of banning Bitcoin altogether.
The Chinese outlet Caixin first reported the ban on Friday, 8 Sept. The following Monday, Bloomberg followed up with a report that China would ban the trading of virtual currencies on domestic exchanges. If this policy were to come to fruition, BTCChina, Huobi, and OKCoin, three of the largest crypto exchanges in China, would take the biggest hit.
As of 15th September, BTCChina has issued an official announcement that in light of government scrutiny, it will be the first to suspend all trading activity by 30 Sept. Should all Chinese exchanges be forced to cease operations as a result of this ban, we can expect to see a massive selloff of cryptocurrencies, which might plunge the crypto market into a long drawn bear market for the foreseeable future. What does this spell for the crypto exchanges operating in China?
Below is a snapshot of the daily trading volume for the past 30 days on OKCoin, taken from data.bitcoinity.org. From 15 August to September 13, 2017, the total trading volume amounted to a staggering 656.88K BTC, or .$2.69 Billion at a rate of $4100 per BTC.
Figure 1: OKCoin BTC/CNY trading volume Aug-Sept 2017 – Data from Bitcoinity.
A quick look at BTCChina’s trading volume is also illustrated, taken as a snapshot shown below. In a similar timeframe, the total trading volume amounted to 563.78K BTC, which equates to $2.31 Billion at $4100 per BTC.
Figure 2: BTCChina BTC/CNY trading volume Aug-Sept 2017 – Data from Bitcoinity.
According to their websites, both BTCChina and OKCoin charge a 0.20% trading fee. This amounts to a revenue of $5.38 million on OKCoin and $4.62 million on BTCChina from trading fees alone.
According to data.bitcoinity, the total 30 day trading volume across all exchanges total a whopping 5.02 million BTC, which roughly equates to $20.6 billion. OKCoin and BTCChina for 22.86% of the volume and as such a closure of these two Chinese exchanges would alone account for a shrink in $4.71 billion in trading volume in the crypto market.
Figure 3: 30 day total BTC trading Aug-Sept 2017 – Data from Bitcoinity.
The effect of a trading ban would be detrimental to these Chinese exchanges, and the information displayed above can give us a ballpark figure of the amount of revenue losses they would suffer.