Bitcoin has had a volatile year, recently hitting a record high after recently losing a third of its value
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Traders said the main cause of this roller coaster ride has been China, where the country’s 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’s drop in the value of the country’s 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’s blockchain technology, which allows users to safely transmit bitcoin through the Internet, they’re 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.
