The capital controls of China was put on a spotlight in the past few days, thanks to Bitcoin trading. Bitcoin chat rooms in China were abuzz about the significant gap of Bitcoin pricing on China's biggest exchange was more expensive as oppose to bitcoins traded in US dollars abroad, said a Reuters report. This had spurred temptations in traders to conduct an arbitrage.
On November 19, a user named "foxtree"on Twitter-like micro-blogging platform Weibo said, "Insane bitcoin. If you've got dollars, hurry and do arbitrage."
Arbitrage is a term used when gaining profits on price differences between at least two markets. The Reuters report said industry observers noticed that the digital currency being sold on BTC China was expensive as opposed to bitcoins sold on other virtual currency exchanges. Traders reportedly could gain profits by purchasing bitcoins on a foreign exchange like Mt Gix and sell them for a higher price on BTC China in yuan, and then convert the yuan to US dollars.
Hong Kong-based finance and technology consultancy Kapronasia head Zennon Kapron said, "Certainly a portion of the premium on BTC China was a result of the fact that any coins sold would be in RMB, which isn't the most portable currency. So if you did trade that market, getting your money back into another currency is more difficult." Kapron used an alternative yet old name for the Chinese currency, which is renminbi.
The People's Bank of China's announcement regarding the ban on Bitcoin trading was one of the factors that could have caused the trading price of the Bitcoin on BTC China, said Reuters. On the other hand, analysts had said the price surge of the Bitcoin in China also introduced the swift evolution of the digital currency markets, noting that as it began with some technology enthusiasts, Bitcoin trading now involves traders who had the financial knowledge to skirt the strict capital controls of China.
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