CEO of BTC China, Bobby Lee, spoke to CoinDesk Editor Emily Spaven about the companyâs triumphs and struggles in 2013, and his vision for the coming year.
BTC China has had an interesting year. In April 2013 the company set the world record for bitcoinâs highest value, becoming the worldâs most active exchange by November.
A solid regulatory rattle by the Peopleâs Bank of China in December saw worldwide values plunge and Chinese exchanges jockey for market share using a variety of strategies.
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Bitcoin value hit a record peak of $1,242 on Mt.Gox on 4th December 2013. It began to plunge, though, after Chinaâs central bank issued a statement the following day forbidding financial institutions from participating in the bitcoin market.
Shortly after that, the authorities began to restrict access to third-party payment providers as well.
The subsequent action was âa shock and a devastating blowâ for BTC China, according to CEO Bobby Lee, who described those December days as his companyâs âdarkest hoursâ.
Price volatility could have been the problem. BTC China had reduced trading fees to a âpromotionalâ 0% in September, but the market quickly overheated as high-frequency traders and speculators leapt in.
âIf weâd known what was coming in December, we wouldnât have done this,â admitted Lee.
The company attempted to deal with the issue by raising fees to 0.3% in mid-December. However, this â together with lack of access to bank deposits â saw BTC Chinaâs volumes dwindle to under 1,000 BTC per day.
Lee had expected other exchanges to follow suit with fee increases designed to appeal to the Peopleâs Bank. Since then, BTC China has fallen to third place in the Chinaâs bitcoin trading market as competing exchanges kept their fees low or simply non-existent. Lee said:
âAll our competitors have flocked back to a 0% fee structure. Which we know is not what people want to see. It only benefits speculators, it only benefits high-frequency day traders â it doesnât benefit the regular people who want to buy bitcoin, nor does it benefit the bitcoin miners who want to sell bitcoin, because of the high volatility.â
He added: âWe are holding our principle. Itâs not that we want to take money from our users â thatâs not it at all. We want a healthy long-term bitcoin ecosystem.â
âWe want to work closely with regulators and we want to play by the rules they want: which is low volatility, and friction. They want friction. They donât want to see a situation where we have 0% fees and speculation is rampant and large volatility and price swings.â
âWe have high confidence that thatâs what the PBOC wants to see.â
BTC China this week announced a new fee structure. Under the new system, CNY withdrawal fees are reduced from 1% to 0.5% and a new âmaker-takerâ fee model will apply to transactions.
âMaker-takerâ is a system whereby those posting multiple buy/sell offers and increase liquidity in the market (âmakersâ) are paid a fee, whereas those who take the offers and remove market liquidity (the âtakersâ) are charged a fee. The fees received and given back (as in BTC Chinaâs case) are equal, resulting in zero trading profit for the exchange.
âWe are giving the fee to the market makers: the people who put in a limited order, waiting for you to buy or sell your bitcoin. We feel very confident and we hope to dominate the market with this model.â
Lee called it a âreverse rebateâ system, saying it was part of BTC Chinaâs goal to help bitcoin in the Chinese market more than to earn revenue for the company. It does not make any profit from this fee structure but intends to use it to prevent the kind of âfree-for-allâ that may have caused last yearâs troubles.
Chinaâs other bitcoin exchanges have dealt with the new situation regarding financial institutions and transfers in their own way. Some have continued to accept deposits into personal or corporate accounts.
BTC China sees that as a temporary measure not conducive to bitcoinâs longer-term success, and one that could get companies mired in regulatory and taxation issues down the road.
Leeâs company now has a âvoucher systemâ for users to upload and withdraw funds. In legal terms, this is different to a third-party payment processor: anyone who wants to enter the market must first purchase a voucher code, which they can use to buy bitcoins.
Withdrawal works in the reverse direction, buying vouchers for bitcoin which are then sold to a separate company for local cash.
Perhaps itâs the near-vertical rise in bitcoinâs value over the past couple of months that spooked central banks internationally to issue warnings. It has resulted in a range of responses from hands-off cautionary solutions (Malaysia, Singapore, Germany) to more active attempts to cool bitcoin trading down (India, China).
The US has taken an investigative approach while authorities in other large economies, such as the UK and Japan, have remained silent. Referring to the Chinese authoritiesâ December bans, Lee said:
âIf prices rocket again, we risk that third hammer hitting, which wonât be good for anyone in China. So that is why we want to moderate prices in bitcoin.â
Itâs not an attempt to manipulate the market, he added, just a pragmatic view of political realities in his country and others.
BTC Chinaâs trading volumes may have plummeted in December, but they have since recovered to a more robust 20,000 BTC per day under the new maker-taker fee system.
Precise data on the trading volume of other Chinese exchanges is difficult to judge, with researchers having to rely on the statistics they publish on their own pages.
As well as taking a transparent approach to BTC Chinaâs fortunes, Lee also wants to maintain a long-term view of bitcoin in China, saying trading volumes are a secondary indicator and that everyone is always at the mercy of any new regulation.
âWe think we are a long-term player and we have funding so weâre not running away â weâre not going anywhere,â he said.
âOur volumes are healthy now and weâre not going to die without a fight.â
 Co-written with Emily Spaven
Chinese freeway image via Shutterstock
