In a remote town in China’s far west Xinjiang province is a large warehouse which exists not for farming, manufacturing or any other expected function.
The large industrial-looking building is instead lined with shelves filled with thousands of virtual ‘mining’ computers. Their purpose? To generate the digital currency Bitcoin.
This warehouse is just one owned in part by Bitcoin investor and businessman Nick Ni.
Ni first started investing in Bitcoin in 2012, and selling the cryptocurrency is now his livelihood.
“I'm a businessman and it's in our nature to chase the money. Once I understood the bitcoin business, the profit potential became clear,” says Ni.
Dozens of Bitcoin mining set-ups similar to Ni’s are located in backwater areas across China.
Large-scale virtual mining like this consumes massive amounts of electricity, so facilities are often set up far from major cities where electricity is cheap.
“I also help run another facility in Sichuan [central China] which is powered by hydropower,” says Ni.
Ni’s mining warehouses generate tens-of-thousands of dollars worth of Bitcoin every month. His enterprise is reflective of the scale of the Bitcoin trade, investment and mining which takes place in China.
What goes up...
The frenzied embrace of the digital currency over recent years helped boost the value of the Bitcoin overall, seeing it hit record highs of almost $1500 at the beginning of this year.
But Bitcoin’s meteoric rise took a turn for the worse last week, when China’s central bank (PBOC) met with the heads of the country’s main Bitcoin exchanges – some of the biggest in the world- and released warnings involving it’s purchase and trade.
The value of Bitcoin dropped again on Wednesday, after the same agency declared it would be investigating the activities of exchanges BTCC, Huobi and OKCoin. It would specifically look into a range of possible violations, including market manipulation, money laundering and unauthorised financing.
“It’s hard to know exactly what the PBOC wants, but in a statement about these visits it did say it was looking to clamp down on potential money laundering. So it’s very evident that they are watching out for Bitcoin being used as a way to get money out of the country," says Beijing-based Bloomberg Technology report David Ramli.
The 'Bitcoin premium'
But members of the city’s Bitcoin business community say the currency's slightly higher value in China makes it impractical for money laundering.
Neil Woodfine helps overseas businesses send payments to China using Bitcoin.
"A lot of people think a lot of the interest in Bitcoin in China is because of its ability to facilitate capital outflows. Actually, Bitcoin is a terrible method for sending money out of China. What you have in China is something - what we call the 'Bitcoin premium'. The price of Bitcoin is slightly higher in China. Bitcoin's real value proposition is that it's a hedge against inflation."
Woodfine believes China’s central bank is trying to stabilise the currency and protect investors, arguing the tighter regulations will be good for Bitcoin's long-term viability.
Still, the move has shaken some investors.
To hold or move on?
IT professional He Sen has invested in Bitcoin for years, but says he is now slowly moving his money from Bitcoin into newer, more covert digital currencies.
“Bitcoin has many advantages, but also problems. I value privacy and other crypto currencies offer better privacy that Bitcoin. Government interference will largely kill the value of young digital currencies like Bitcoin."
China has dominated the Bitcoin trading market since the currency was created in 2008. David Ramli says any crackdown is likely to have an impact around the world.
"Much of the boom in Bitcoin has been largely thanks to the rising intervention of Chinese miners and Chinese traders, so anything that greatly clamps down on that will have a direct impact on the global price of Bitcoin. The price of Bitcoin very much lives and dies on what the Chinese government does," says Ramli.
Veteran Bitcoin investor Nick Ni says he and others are used to Bitcoin's rollercoaster volatility, and intend to stick with the currency.
"The profit from Bitcoin mining is high, and so long as beats other forms of investment I'll keep building on it," he says.
