Bitcoin has had a volatile year, recently hitting a record high after recently losing a third of its value<\/b>
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Traders said the main cause of this roller coaster ride has been China, where the country\u2019s central bank put domestic bitcoin exchanges on notice early last month that they needed to do more to tighten foreign exchange controls. China has been trying to curb the practice of using bitcoin to circumvent rules limiting the amount of money Chinese mainlanders can send abroad, which is currently capped at $50,000 a year.
This capital flight has caused a drop in the value of the renminbi and Chinese regulators have connected the dots between last year\u2019s drop in the value of the country\u2019s currency and a corresponding rise in the value of bitcoin. Bitcoin bought in renminbi accounted for a staggering 98 percent of all bitcoin trading activity in the last six months of 2016, according to bitcoinity.org .
Eager to convert the Chinese currency into a more stable global currency and stash that wealth abroad, many Chinese mainlanders have been buying bitcoin locally in renminbi and then, using bitcoin\u2019s blockchain technology, which allows users to safely transmit bitcoin through the Internet, they\u2019re sending bitcoin to other countries where recipients (family members, friends or other contacts) convert bitcoin back into a local currency which can then be used to make investments outside of the country.
But why isn\u2019t China simply clamping down hard on the whole bitcoin thing?
\u201cYou have a government that likes to retain control, and bitcoin is a decentralized currency outside of the control of any nation-state,\u201d Christopher Burniske, blockchain products analyst at New York-based ARK Investment Management, told Salon. \u201cSo that right there is a bit threatening, but at the same time China is working to be recognized as a global leader in technology and economics and the political fallout from outright banning or confiscating bitcoin is arguably too great.\u201d
Burniske said China may have other motives for not taking a hardline stance, such as working to develop its own form of digital currency, informally known as ChinaCoin. Early last year, the country\u2019s central bank\u00a0 said it was mulling a rollout of its own digital currency.<\/p>\n