Website https://www.btcchina.com/ Contact business@btcchina.com

Bitcoin in ChinaWhat is Next?

Bobby Lee@bobbycleeCEO, BTC ChinaBoard Member, Bitcoin Foundation

June 24, 2014Hong Kong

Agenda

I. Bitcoin’s Development in ChinaII. Industry Landscape TodayIII. As Store of ValueIV. RegulationV. Bitcoin and Internet FinanceVI. What’s Next in China

Bitcoin’s Development in ChinaHOW DID WE GET HERE?

Bitcoin’s Development in China

2011• BTC China goes

online as the first Bitcoin Exchange in China

2012• Average 24hr trade

volume remains in the hundreds

• Avalon ASIC Mining manufacturers announce crowd funding initiative

• Activity largely dominated by mining

2013• A suite of new

exchanges emerge• Nov 30th BTC China

Price peaks at RMB ¥7,588

• Dec. 5th, PBOC releases first formal statement on BTC

• Dec 7th BTC China trade volume peaks at over 150,000 BTC

• Dec 16th PBOC adjust regulation via Verbal Guidance

2014• Feb-Mar: Continued

regulatory uncertainty impacts the price

• BTC Price recovers to > 50% of 2013 peak

• Apr 15th China’s first Bitcoin ATM sponsored by BTC China

• May: More PBOC regulation affecting bank deposits

• Exchanges all switch to using Voucher method for deposits

195 136 320,000

News Articles containing “比特币”(Baidu News Search)

(January – Today)295,000

Image source: bitcoincharts.com

Exchanges Come and Go…Bitcoin Exchange Started Closed Duration

Vircurex October, 2011 March 18th, 2014 29 months

Linkcoin Sept 25th, 2012 May 1st, 2014 12 months

FXBTC January 1st, 2013 May 10th, 2014 17 months

BitXF 比特先锋 March 25th, 2013 August 17th, 2013 5 months

GBL May, 2013 October 26th, 2013 6 months

Renmeng人盟比特币 May, 2013 April 30th, 2014 20 months

GoxBTC June, 2013 January 18th, 2014 7 months

808BTC December, 2013 18-Mar-14 4 months

Money.cn 钱途在线 December, 2013 February 19th, 2014 3 months

Bitexian 比特线 2013 May 5th, 2014

Bitema 比特吗 February 27th, 2014 May 30th, 2014 3 months

Dcoin 2-Apr-14 31-May-14 2 months

9 months Average!

Bitcoin ExchangesWhat Does It Take?

• Trust and Loyalty• Security & Reliability• Best Practices & Policies• Customer Focus

3-Years OldHappy Birthday!

China’s First Bitcoin ExchangeWorld’s Longest Running

Bitcoin in ChinaINDUSTRY LANDSCAPE TODAY

Bitcoin in China:A Delicate Balance

Strong Domestic Demand

Regulatory Pressure

The Industry Today: China

Payments

Wallets

Exchanges (Speculation)

Mining

Mining• China accounts for 284 reachable nodes on the

network (4%), the 7th most of any country• China is home to the second largest mining pool,

Discus fish (13% of hashrate distribution)A Global Hub

• China’s electricity costs are significantly lower than the global average

• Bitcoin Magazine estimated mining in China costs $2/GHash, compared to $7-$8 for some US mining pools

Cost Advantage

• China is home to many of the world’s major mining equipment manufacturers

• Examples: Avalon, ROCKMINER, AntMiner, HashRatio, Gridseed, SilverFish and Zeus

Major Manufacturers

Exchanges

Low Fees Strong Demand

Great Service Global Relevance

Speculation & Trading

Wallets and Secure Storage

Wallet Popularity

Active mining Sector

Demand for Storage

Unaffected by regulation

Payments

Demand Regulation

Low-Fee Alternatives

F.U.D.

Not Allowed?

Merchants

Users

Chicken and Egg Problem!

Continued Threats to Bitcoin

Bad Actors• Poorly or

unfaithfully managed Bitcoin enterprises:

• Damage faith in the industry

• Prevent wider adoption

Volatility• For some short-

term speculators, volatility is appealing

• Bitcoin’s continued volatility remains a barrier to broader adoption

Regulation• Global regulatory

framework is taking shape

• It is important for responsible industry leaders to take an active role in this dialogue

Hackers• DDOS, Social

Engineering, variety of methods to steal

• Drive up operating costs

• Further damage to confidence in industry

STORE OF VALUE ASSET CLASSWhat Drives Bitcoin Today?

Store of ValueAsset Class Price (USD)Silver (oz) $21

Stocks (S&P 500) $67

US Corporate Bonds $99

Crude oil (barrel) $106

US Real Estate (sq. foot) $122

Bitcoin $600

Gold (oz) $1,320

Manhattan Real Estate (sq. foot) $1,398

Gold (oz) Bitcoin US Real Estate (sq. foot)

Crude oil (barrel) US Corporate Bonds

Stock (S&P 500) Silver (oz) -

200

400

600

800

1,000

1,200

1,400 $1,320

$600

$122 $106 $99 $67 $21

Relative Price (USD)

On a per-unit basis,Bitcoin is rather expensive

How to Normalize Prices?

How to you compare something physical with something virtual?

Value “Per Capita”Asset Class Total Value Value Per Capita Bitcoin $7 billion $1

USD Money Supply (M2) $1.3 trillion $183

Oil $32 billion $485

Gold $7 trillion $1,000

USA Real Estate Market $35 trillion $5,000

Govt. Bonds $41 trillion $5,900

Corporate Bonds $42 trillion $6,000

Stock Market $54 trillion $7,500

Asset Price Per Capita (USD)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

$7,500

$6,000 $5,900

$5,000

$1,000$485 $183 $2 $1

On a Per-Capita basis, It’s pretty cheap!

Bitcoin’s Appeal

• Scarce Commodity:– Only 0.003 BTC for every person on Earth

• The total USD value of all Bitcoin in circulation equals:– $1.09 per Person, Globally– Less than 0.02% of current global stock market

capitalization– Only 0.1% of all gold in circulation

OVERCOMING UNCERTAINTYThe Regulatory Environment

China has NOT banned Bitcoin

China has NOT banned Bitcoin!

It is being Suppressed…

Interpreting PBOC Regulation

• Rumored Statements + Western Press = New Regulation?• Many believe that China has “banned” Bitcoin (…again)• The December 5th “Notice on Defending Against the Risks of

Bitcoin” remains the definitive statement of the PBOC’s stance towards Bitcoin:– Bitcoin is not a currency of “real meaning” – It is a special class of virtual commodity – Buying and selling Bitcoin is a form of online commodities

purchasing behavior; Individuals have the right to participate, provided they are willing to undertake the risk

The Central Bank has NOT banned Bitcoin. It has enforced a stricter interpretation of its Dec. 5th, 2013 statement.

PBOC Regulation 2013-2014• The Central Bank has more strictly enforced its initial statement

– Disallowed Payment Processors (Dec 2013)– Disallowed Banks (May 2014)– Disallow Vouchers?

• Causes of Uncertainty– Discrepancies in enforcement timelines and jurisdictions– Incommunicative nature of the People’s Bank of China– Information vacuum that gets filled by speculation (and speculators!)

• It is important for China’s industry leaders to communicate clearly and effectively on this matter– However, our ability to do so is often determined by the extent to which

regulators communicate with us

PBOC Attitude

Zhou Xiaochuan, PBOC Governor (April 2014)• “Banning Bitcoin is Out of the Question”• 谈不上取缔比特币

We are safe for now.

PARALLEL PATHS?Bitcoin and Internet Finance

Internet Finance in ChinaWealt

h Manageme

nt Produ

cts

• The largest money market fund in China is not run by a financial institution• Alibaba’s Yu’E Bao has more investors than the country’s equity markets• Tencent’s WeChat, with users roughly equal to the US population, offers a WMP with

annualized return of 7.4% (commercial banking sector’s average return: 6%)

Peer-to-

Peer Lendi

ng

• Over 1,000 platforms in China• P2P loans reached 68 billionn CNY ($11bn) in 2013, 3x times 2012 levels• VC’s take notice

• Renrendai obtained $130 million in funding (2014)• 74 closed or went bankrupt in 2013

Virtual

Payment

Systems

• In 2013, commercial banks handled mobile payments worth 9.64 trillion CNY ($1.6 trillion) • Without even going to the bank, you can:

• Pay the utilities with AliPay (AliBaba)• Pay for a taxi with WeChat (Tencent)• Pay for just about anything on Taobao

Internet Finance in China

• In the past several years, large tech companies moved aggressively

• Services include investment and payment products

Technology Innovation

• Released competing products

• Pushed for regulation

Banks React • Encourages “healthy” Internet Finance activity

• Blocks Tencent and Alibaba’s virtual credit card services

• Future regulation uncertain

Government Regulation

Wealth

Manageme

nt Produ

cts

• The largest money market fund in China is not run by a financial institution• Alibaba’s Yu’E Bao has more investors than the country’s equity markets• Tencent’s WeChat, with users roughly equal to the US population, offers a WMP with annualized return of 7.4% (commercial banking sector’s average return: 6%)

Peer-to-

Peer Lendin

g

• Over 1,000 platforms in China• P2P loans reached 68 billionn CNY ($11bn) in 2013, 3x times 2012 levels• VC’s take notice• Renrendai obtained $130 million in funding (2014)

• 74 closed or went bankrupt in 2013

Virtual Payme

nt Systems

• In 2013, commercial banks handled mobile payments worth 9.64 trillion CNY ($1.6 trillion) • Without even going to the bank, you can:• Pay the utilities with AliPay (AliBaba)• Pay for a cab with WeChat (Tencent)• Pay for just about anything on Taobao

• In the past several years, large tech companies moved aggressively

• Services include investment and payment productsTech

• Released competing products

• Pushed for regulation

Banks React

• Encourages “healthy” internet finance activity

• Blocks Tencent and Alibaba’s virtual credit card services

• Future regulation uncertain

Central Govt.

Internet Finance in China

Regula

tio

n?

GOING FORWARD, GOING GLOBALWhat’s Next for Bitcoin China

Going Forward, Going Global

2014 Grow Along with Global Trends

Wait and See: Regulation in other Countries

Continue to Serve China Domestic Market

Bitcoin in China: A Future For Certain

Current Trends in China

• Mining Continues to Lead• More Professionals, Speculation• Offline Buying/Selling, OTC– NEW: BTC China: Mobile Picasso– “ATM” Sell for Cash

• Bitcoin 2.0 Developments• Bitcoin Investments Programs• More Alt-Coins

THANK YOU!

Bobby Lee@bobbycleeCEO, BTC ChinaBoard Member, Bitcoin Foundation