In recent years, China has bumped the United States from its position as the largest economy in the world. Now, according to recent reports, China accounts for approximately 80 percent of bitcoin transactions.

With more bitcoin volume actually being driven by the yuan, the U.S. dollar has fallen to second place in terms of the most used currency for bitcoin transactions. The euro is in third position. Three exchanges, Huobi, OKcoin, and BtcChina, now account for more than 79 percent of all bitcoin trading around the world. This is quite interesting, considering that bitcoin is purportedly banned in China. ¹ As bitcoin transactions soar in China, the People's Bank of China has continued to forbid financial institutions from engaging in any type of trading activities involving digital currency.

What is driving such strong bitcoin trading in China?

Given the Chinese government's stance on bitcoin, one might easily wonder why bitcoin is performing so well. Actually, China boasts a number of advantages over the United States, not the least of which is the availability of cheap electricity. According to statistics released by the International Energy Agency (IEA), electricity prices in China average around 8 cents per kilowatt hour. In the United States, the average electricity price is about 12 cents/kWh. The availability of cheap electricity has made it possible for China to become a virtual haven for bitcoin miners. Bitcoin farms are now popping up all over the country, despite China's rigid stance on digital currencies.

While cheap energy is certainly an important advantage, it is not the only benefit that China has over other countries, including the United States. China remains home to some of the most well-known and largest Bitcoin ASIC manufacturers, including ZeusMiner, Rockminer, and Gridseed.

The Chinese government's response to bitcoin

On the surface, the growth of the bitcoin community in China certainly might seem somewhat surprising. In reality, despite the government's ban on financial institutions from becoming involved digital currencies, the fact remains that bitcoin startups in China have remained untouched.

In fact, the Chinese government has proven to be surprisingly open when it comes to virtual currencies, including bitcoin. Furthermore, the Chinese central bank has embarked on a practice of actually supporting bitcoin, although it is likely unintentional, by deliberately weakening the yuan as a result of eased monetary prices. Due to an asset purchase program that has placed more liquidity into the country's financial system, China has actually lowered interest rates significantly. Consequently, speculators and traders have been able to take advantage of the opportunity to borrow at low rates in order to trade on the bitcoin exchanges. The Chinese government has also been surprisingly lenient in regards to granting complete freedom to entrepreneurs to experiment with bitcoin business models. In light of each of these moves by the Chinese government, the bitcoin community in China has been able to thrive.

Perhaps due to the government's continued stance on bitcoin, the digital currency community in China remains tightly kit. As a result, there tends to be an incredible amount of cooperation between companies and individuals in China in terms of bitcoin trading.

Lower bitcoin exchange rates in China

China is also able to benefit from favorable exchange fee rates. Unlike in most other countries, Chinese bitcoin exchanges do not charge an actual fee for trading. Instead, trading relies on an incentive mechanism based on the fact that free always sells better than cheap.

With a distinctive combination of cheap electricity, free exchange rates, and a government that may have banned trading activity with financial institutions but which appears willing to look the other way in terms of startups, China seems to have everything necessary to dominate bitcoin.

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1) Tech In Asia. Lost cause or comeback king? BTC China CEO Bobby Lee on the state of Bitcoin in China.
https://www.techinasia.com/lost-comeback-king-btc-china-ceo-bobby-lee-state-bitcoin-china/