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As is well known, for a long period, BTCChina had been the top dog in the China bitcoin scene and had the highest volume in the world (and price), surpassing Mtgox of the west (French owned, Japan based, but dealing mainly with western clients) and BTC-E (the Russian mystery). It attracted its now CEO Bobby Lee (Brother of Litecoin and Coinbase’s Charles Lee) to leave Walmart (his previous job was at yahoo) to take to post.

December proved a different story with multiple phases of a China crackdown. Payment processors were banned from Bitcoins, and Huobi took on the great risk of using personal deposit accounts. That allowed Huobi to pull ahead even as BTCChina scrambled to procure new funding sources.

Finally, after many upsets, BTCChina has decided to use the BTCC voucher mechanism (right before a Taobao ban on bitcoin) but Paipai seems to be still online according to wired.

As time passed, the new positions were Huobi at no.1 Okcoin retains its position at no.2, and BTCChina dropping to the third place. Huobi now has a sizable volume and market share of the China trade.

(Note too HK’s 796, recently taking litecoins, which is also another avenue for those in China who have access to HK)

Forbes has chronicled the Bobby Lee story:

BTC China attracted headlines and a $5 million investment in the fall from Silicon Valley’s Lightspeed Venture Partners as well as its China arm… In December venture capital firm Andreessen Horowitz placed the biggest Bitcoin bet so far with a $25 million investment in San Francisco’s Coinbase…Lee first heard about Bitcoin in the spring of 2011 while visiting his family in California. Lee’s brother, Charles, was using some of his computer equipment to mine Bitcoin at home.

When Wal-Mart decided to partner with an existing e-commerce site in 2012 rather than build its own, Lee found himself jobless. His mind returned to those Bitcoins gathering digital dust on his computer. His brother had founded a competing cryptocurrency called Litecoin, but Lee wanted to focus on bringing Bitcoin to China. BTC China had popped up two years earlier as the country’s first site for Bitcoin trading. “It was just two guys working part-time on it,” says Lee. They were charging a 0.3% trading fee, but seeing just a few hundred trades per day. Lee sought out its cofounders to convince them it could be bigger. Lee became CEO in April.

Wired Extract

Meanwhile, China’s two other big exchanges — Huobi and OKCoin — are bypassing payment processors by letting users wire money directly into exchange bank accounts, says Scott Freeman, a China-based entrepreneur who is also a Bitcoin investor. That’s a slower process, but he says that since the December regulatory changes, trading has gone on in the country pretty much unabated. Lee says that BTC-China isn’t going the direct payment route because they would first need to be licensed as a payment processor to receive and pay out money from BTC-China’s corporate bank account.

Huobi’s big advantage seems to boil down to one thing: it does not charge trade commissions, while its competitors do. Apparently, nothing beats a free product when you’re an upstart company looking to gain market share. And as Reddit readers have pointed out, a commission-free exchange is an attractive crash pad for automated trading software, which seeks to profit on Bitcoin’s daily ups and downs.

According to Lee, BTC-China dropped its trading fees in September, right before the fall run-up in Chinese Bitcoin trading. But when China’s regulators stepped in in December, Lee decided to reinstate them in order to disarm criticism that the trading freebies were contributing to a speculative Bitcoin bubble. OKCoin followed suit, but not Huobi.

With its trading fees and voucher system BTC-China has seen its role as the top Chinese Bitcoin exchange slip. According to BTCKan.com, a market data aggregator, the exchange now ranks third in China when measuring the volume of trades. In an email interview, Huobi CEO Leon Li said his exchange has stolen market share from competitors because it offers “better service, user experience and promotion.”

Note that the high frequency trading algos may account for Huobi and Okcoin, or it may not. High frequency trading is of course not a good thing to have taking place. (Also see ofnumber’s take on how to detect exchanges fudging numbers)

Of course, only time will tell if China will finish its return back into the game.

 

Wired

http://www.wired.com/wiredenterprise/2014/01/huobi/

Back in October, we marveled that a then-unknown company named BTC-China had suddenly become the world’s most popular Bitcoin exchange, helping to push the value of the digital currency over $200.

But less than three months later, Bitcoin prices have quadrupled, and there’s a new top dog in China: another virtually unknown company called Huobi.

At the moment, Bitcoin is the Wild West of international finance — an international peer-to-peer network of computers that, as a whole, lies out of the reach of any one country’s regulation. But when Bitcoin bumps against closely regulated financial services businesses, things become even wilder. That’s what’s happening in China, where regulators stepped in last month to forbid financial services companies from doing business with the Bitcoin exchanges — a move that instantly changed the landscape.

Big Chinese businesses that were warming up to Bitcoin, such as search giant Baidu, suddenly dropped it. Bitcoin prices plunged.

It appeared that the government was going to make it tricky, if not impossible, to fund Bitcoin exchange accounts. But that hasn’t turned out to be the case. Big companies like Alibaba have dropped bitcoin business, but the exchanges are still doing business, they’ve just been forced to make a few changes. “In the past month, things have been quite interesting here in terms of Bitcoin,” says Bobby Lee, the CEO of BTC China.

While the Central Bank guidelines made things more difficult for Bitcoin businesses, they did not outlaw the currency altogether. And that was enough for people like Lee. “Because Bitcoin exchanges have been given legal room to exist, they essentially found different ways to accept money for deposit,” he says.

Since customers can no longer use payment processors to fund accounts, BTC-China has hacked together a voucher system that let’s new people set up accounts without actually transferring money to the Chinese exchange. Instead, customers who want to cash out are selling their BTC-China dollars as vouchers on sites such as Paipai.com, an online retail site similar to eBay. To fund a BTC-China account, they simply enter their voucher code on the exchange’s website. “There’s a healthy network of resellers who are selling vouchers,” says Lee.

Meanwhile, China’s two other big exchanges — Huobi and OKCoin — are bypassing payment processors by letting users wire money directly into exchange bank accounts, says Scott Freeman, a China-based entrepreneur who is also a Bitcoin investor. That’s a slower process, but he says that since the December regulatory changes, trading has gone on in the country pretty much unabated. Lee says that BTC-China isn’t going the direct payment route because they would first need to be licensed as a payment processor to receive and pay out money from BTC-China’s corporate bank account.

Huobi’s big advantage seems to boil down to one thing: it does not charge trade commissions, while its competitors do. Apparently, nothing beats a free product when you’re an upstart company looking to gain market share. And as Reddit readers have pointed out, a commission-free exchange is an attractive crash pad for automated trading software, which seeks to profit on Bitcoin’s daily ups and downs.

According to Lee, BTC-China dropped its trading fees in September, right before the fall run-up in Chinese Bitcoin trading. But when China’s regulators stepped in in December, Lee decided to reinstate them in order to disarm criticism that the trading freebies were contributing to a speculative Bitcoin bubble. OKCoin followed suit, but not Huobi.

With its trading fees and voucher system BTC-China has seen its role as the top Chinese Bitcoin exchange slip. According to BTCKan.com, a market data aggregator, the exchange now ranks third in China when measuring the volume of trades. In an email interview, Huobi CEO Leon Li said his exchange has stolen market share from competitors because it offers “better service, user experience and promotion.”

How long Huobi will be able to stay on top, however, is unclear. “China’s a tough market,” Freeman says.

Robert McMillan

Robert McMillan is a writer with Wired Enterprise. Got a tip? Send him an email at: robert_mcmillan [at] wired.com.

Read more by Robert McMillan

Follow @bobmcmillan on Twitter.

Coindesk

http://www.coindesk.com/btc-china-bitcoin-volume-bounces-back/

EO of BTC China, Bobby Lee, spoke to CoinDesk Editor Emily Spaven about the company’s triumphs and struggles in 2013, and his vision for the coming year.

BTC China has had an interesting year. In April 2013 the company set the world record for bitcoin’s highest value, becoming the world’s most active exchange by November.

A solid regulatory rattle by the People’s Bank of China in December saw worldwide values plunge and Chinese exchanges jockey for market share using a variety of strategies.

We think we are a long-term player and we have funding so we’re not running away – we’re not going anywhere.

Bitcoin value hit a record peak of $1,242 on Mt.Gox on 4th December 2013. It began to plunge, though, after China’s central bank issued a statement the following day forbidding financial institutions from participating in the bitcoin market.

Shortly after that, the authorities began to restrict access to third-party payment providers as well.

The subsequent action was “a shock and a devastating blow” for BTC China, according to CEO Bobby Lee, who described those December days as his company’s “darkest hours”.

Price volatility could have been the problem. BTC China had reduced trading fees to a “promotional” 0% in September, but the market quickly overheated as high-frequency traders and speculators leapt in.

“If we’d known what was coming in December, we wouldn’t have done this,” admitted Lee.

Trading fees

The company attempted to deal with the issue by raising fees to 0.3% in mid-December. However, this – together with lack of access to bank deposits – saw BTC China’s volumes dwindle to under 1,000 BTC per day.

Lee had expected other exchanges to follow suit with fee increases designed to appeal to the People’s Bank. Since then, BTC China has fallen to third place in the China’s bitcoin trading market as competing exchanges kept their fees low or simply non-existent. Lee said:

“All our competitors have flocked back to a 0% fee structure. Which we know is not what people want to see. It only benefits speculators, it only benefits high-frequency day traders – it doesn’t benefit the regular people who want to buy bitcoin, nor does it benefit the bitcoin miners who want to sell bitcoin, because of the high volatility.”

He added: “We are holding our principle. It’s not that we want to take money from our users – that’s not it at all. We want a healthy long-term bitcoin ecosystem.”

“We want to work closely with regulators and we want to play by the rules they want: which is low volatility, and friction. They want friction. They don’t want to see a situation where we have 0% fees and speculation is rampant and large volatility and price swings.”

“We have high confidence that that’s what the PBOC wants to see.”

btc-china

BTC China this week announced a new fee structure. Under the new system, CNY withdrawal fees are reduced from 1% to 0.5% and a new “maker-taker” fee model will apply to transactions.

“Maker-taker” is a system whereby those posting multiple buy/sell offers and increase liquidity in the market (“makers”) are paid a fee, whereas those who take the offers and remove market liquidity (the “takers”) are charged a fee. The fees received and given back (as in BTC China’s case) are equal, resulting in zero trading profit for the exchange.

“We are giving the fee to the market makers: the people who put in a limited order, waiting for you to buy or sell your bitcoin. We feel very confident and we hope to dominate the market with this model.”

Lee called it a “reverse rebate” system, saying it was part of BTC China’s goal to help bitcoin in the Chinese market more than to earn revenue for the company. It does not make any profit from this fee structure but intends to use it to prevent the kind of “free-for-all” that may have caused last year’s troubles.

Vouchers

China’s other bitcoin exchanges have dealt with the new situation regarding financial institutions and transfers in their own way. Some have continued to accept deposits into personal or corporate accounts.

BTC China sees that as a temporary measure not conducive to bitcoin’s longer-term success, and one that could get companies mired in regulatory and taxation issues down the road.

Lee’s company now has a “voucher system” for users to upload and withdraw funds. In legal terms, this is different to a third-party payment processor: anyone who wants to enter the market must first purchase a voucher code, which they can use to buy bitcoins.

Withdrawal works in the reverse direction, buying vouchers for bitcoin which are then sold to a separate company for local cash.

Threats to central banks

Perhaps it’s the near-vertical rise in bitcoin’s value over the past couple of months that spooked central banks internationally to issue warnings. It has resulted in a range of responses from hands-off cautionary solutions (Malaysia, Singapore, Germany) to more active attempts to cool bitcoin trading down (India, China).

The US has taken an investigative approach while authorities in other large economies, such as the UK and Japan, have remained silent. Referring to the Chinese authorities’ December bans, Lee said:

“If prices rocket again, we risk that third hammer hitting, which won’t be good for anyone in China. So that is why we want to moderate prices in bitcoin.”

It’s not an attempt to manipulate the market, he added, just a pragmatic view of political realities in his country and others.

Long-term view

BTC China’s trading volumes may have plummeted in December, but they have since recovered to a more robust 20,000 BTC per day under the new maker-taker fee system.

Precise data on the trading volume of other Chinese exchanges is difficult to judge, with researchers having to rely on the statistics they publish on their own pages.

As well as taking a transparent approach to BTC China’s fortunes, Lee also wants to maintain a long-term view of bitcoin in China, saying trading volumes are a secondary indicator and that everyone is always at the mercy of any new regulation.

“We think we are a long-term player and we have funding so we’re not running away – we’re not going anywhere,” he said.

“Our volumes are healthy now and we’re not going to die without a fight.”

 Co-written with Emily Spaven

 

Forbes: China bites into bitcoin

http://www.forbes.com/sites/kashmirhill/2014/01/06/china-bites-into-bitcoin/

Bitcoins were worth nothing in 2009, when the digital cryptocurrency was first minted on the computer of its mysterious creator, Satoshi Nakamoto, who claimed to live in Japan.

Four years later the value of one Bitcoin surpassed $1,100, thanks in large part to a surge in speculative interest from China. A little-known Shanghai company called BTC China met the demand and quickly became the world’s largest Bitcoin exchange, with more than 100,000 of the virtual coins, or $100 million, traded on a single day, nearly double the market share of its closest competitor, Japan’s Mt. Gox.

Bobby Lee (Photo: Qilai Shen)

Bobby Lee (Photo: Qilai Shen)

BTC China attracted headlines and a $5 million investment in the fall from Silicon Valley’s Lightspeed Venture Partners as well as its China arm. But its rapid growth, and that of Bitcoin, also attracted the attention of the Chinese government.

Unwanted attention, as it turned out. In December the People’s Bank of China decreed that merchants may not accept Bitcoin and forbade banks and payment processors from converting Bitcoin into yuan. The price of Bitcoin fell below $500 in response.

Bitcoin is still widely embraced by technophiles and libertarians (and porn and pot-dealing websites) because the currency is all digital, easily transported across borders and resistant to state controls. A Bitcoin is “mined” on privately owned, specialized computing equipment and passed around by a global, peer-to-peer network of computers. Transactions are trackable, but the parties to each transaction are not. Bitcoin has attracted entrepreneurs and investors excited about its legitimate use: cutting out the middlemen in online payments. In December venture capital firm Andreessen Horowitz placed the biggest Bitcoin bet so far with a $25 million investment in San Francisco’s Coinbase, a platform for buying, selling and storing Bitcoins in the U.S. “As the world becomes more digital, paying physically with bills, gold or credit cards will seem archaic. Everyone will have Bitcoins,” says BTC China CEO Bobby Lee.

But China’s actions over the past weeks have put BTC China’s future in doubt. After Chinese regulators held a closed-door meeting to warn financial companies against working with exchanges, BTC China was swiftly abandoned by two payment processors. “There are 300 payment processors in China. We’re going to go down the list and find one that will work with us,” says an optimistic Lee. He doesn’t think the government is trying to put him out of business but rather put the screws on Bitcoin to cut down on the rampant speculation. “They haven’t declared exchanges illegal. That gives us room to maneuver, so there’s still hope.”

Lightspeed’s Jeremy Liew is keeping a distant focus. “Anyone investing in Bitcoin companies and Bitcoin specifically should be doing so with the expectation that there will be a lot of volatility driven by regulatory announcements. We invest over 5- to 10-year horizons, not over two-week horizons,” says Liew. “For Bitcoin to be credible, we need executives who have the gravitas to make its case to regulators. That’s Bobby.”

Lee, 38, was born in the Ivory Coast to parents who had moved there from China to set up a flip-flop factory. He was sent to an elite boarding school in the States, graduated from Stanford and spent eight years as an engineer at Yahoo YHOO +0.71% in California. He moved to China in 2006 to work as an engineer at EMC EMC -0.04%. In 2011 he became Wal-Mart’s chief technology officer in China, charged with helping to build its commerce site.

Lee first heard about Bitcoin in the spring of 2011 while visiting his family in California. Lee’s brother, Charles, was using some of his computer equipment to mine Bitcoin at home. Lee thought he would do the same back in China and bought a bunch of graphics cards from his brother. He started mining in July, the same month he started at Wal-Mart. Neither lasted long.

“It was a hot summer, and the computers created a lot of heat,” says Lee. “My wife said it was too noisy and hot, and so I turned it off in October.” He mined 25 coins, which struck him as a “waste” because they were worth just $300 total at the time and he had spent $1,000 on mining gear.

When Wal-Mart decided to partner with an existing e-commerce site in 2012 rather than build its own, Lee found himself jobless. His mind returned to those Bitcoins gathering digital dust on his computer. His brother had founded a competing cryptocurrency called Litecoin, but Lee wanted to focus on bringing Bitcoin to China. BTC China had popped up two years earlier as the country’s first site for Bitcoin trading. “It was just two guys working part-time on it,” says Lee. They were charging a 0.3% trading fee, but seeing just a few hundred trades per day. Lee sought out its cofounders to convince them it could be bigger. Lee became CEO in April.

They relaunched the site in June and went out looking for venture capital. When they landed the round from Lightspeed in September, they eliminated their fee. That kicked off a bidding frenzy fueled also by the free Bitcoin p.r. that came when the FBI took down Bitcoin-only drug site Silk Road and Baidu announced it would accept Bitcoin for security services, plus the positive buzz around U.S. Senate hearings on the digital currency.

But then the People’s Bank of China, responding to what it says was a wave of consumer concerns, declared in December that Bitcoin wasn’t a recognized currency and shouldn’t be used in the market, prompting Baidu and other Chinese firms to stop taking it as payment. As the extent of the real-world ban became clear, the price of a Bitcoin dropped to $345 on BTC China.

Lee initially saw the declaration as just a speed bump. Chinese citizens were still free to trade Bitcoin. BTC China stayed on the good side of the government’s concerns about money-laundering by asking customers for official identification. BTC also reinstated trading fees to cut down on the frenzy. But days later the government crushed hopes of a thriving trading business when it unofficially barred payment processors from working with Bitcoin exchanges. Suddenly BTC China and others would no longer be able to move their customers’ funds from yuan to Bitcoin and back–which is what exchanges exist to do. “We’re reading the tea leaves,” says Shanghai Bitcoin entrepreneur Jack Wang. “But it looks like they’re going to squeeze the exchanges until they’re not able to operate.”

China’s move is not without precedent. Eleven years ago Chinese Web service Tencent created a virtual currency called Q Coin for use in games. It became increasingly valuable offline and started trading on exchanges along with renminbi and gold. The government declared such use illegal in 2007, sending its real world value crashing to nothing.

China is still letting people play with Bitcoin in its country, but by cutting off ways to convert it to real money, it is turning it into the digital Monopoly money that skeptics have always dismissed it as being. “If necessary, we’ll go into other Bitcoin services,” says Lee. The company plans to launch a secure online Bitcoin wallet called Picasso at the end of December. “This is not the end. It may be the end of a chapter, but it’s not the end of our company.

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