One week ago today, rumors began to hit the market of Chinese payment processors no longer being able to serve bitcoin exchanges. BTC China and OKCoin, the leading XBT / CNY exchanges by volume for much of the past few months, also reinstated trading fees on the same day. Those factors combined have led to reduced trading volume at those exchanges, as well as a glimpse into why bitcoin companies have attracted so much venture capital in 2013.
On September 24, BTC China temporarily removed trading fees from their exchange. Bitcoin’s popularity in China ballooned dramatically shortly thereafter as other Chinese exchanges matched the free trading offer. Over the following months, cumulative daily XBT/CNY trading volume across exchanges increased from approximately 6,000 XBT to 200,000 XBT by early December. For live rates and volumes, see TGB’s Market Dashboard.
Free trading offered an opportunity for market participants to frictionlessly test trading strategies and execute high-frequency algorithms. In addition to driving up volume, it may have also contributed to increased volatility, as indicated in a recent post by BTC China CEO Bobby Lee.
Last week’s announcements that BTC China and OKCoin would no longer be able to accept renminbi deposits, coupled with the fee increase on both, have led to a slide in volume on the previously-dominant exchanges. Yet, even with the decline, trading volume over the week since the changes has been tremendous on a longer-term historical basis.
Since the fees were reinstated on December 16, BTC China has facilitated approximately 340K XBT / ¥1.25B in trades. At the officially-stated 0.3% fee for buyers and sellers, that’s approximately ¥3.75M ($615K) and more than 1,000 XBT ($625K at current rates), or a combined $1.25M in estimated USD-equivalent revenue.
The volume since the fee increase is at least partially attributable to the dramatic market reaction to last week’s news, with most of the fees earned front-loaded towards the date of the announcement. That said, only a fraction of that pace would have to be realized in the long term for the recent $5M investment in BTC China from Lightspeed China Partners and Lightspeed Venture Partners to look highly attractive from a VC perspective.
China faces regulatory hurdles as a result of the recent announcements that may hinder the near-term outlook for trading in the region, but similar revenue is also being realized by exchanges across the globe. For example, over the same time period since December 16, Bitstamp has seen trading volume of approximate 375K XBT / $230M. At the lowest stated rate on their fee schedule, that translates to roughly $925K in USD-equivalent revenue – all in the last week.