When the PBoC’s digital currency that will conform to the existing central – commercial bank arrangement is out later this spring, it would have an impact on the use and price of Bitcoin which BTCC’s co-founder Bobby Lee recently tipped would be worth between USD$5,000 and USD$11,000 by 2020’s block halving.

Though the form a competition between the Chinese government-backed digital currency and Bitcoin would take has not yet been ascertained, there have been concerns in the cryptoworld that China’s release of a currency which would likely be the first of its kind will be pretty bearish for Bitcoin – there are talks of FedCoin in the US and RSCoin in the UK.

This is premised on the view that Bitcoin is way too small to be a danger to the yuan. Rather, on the release of the new digital currency, it may bring about a likely worst case scenario that would see a dump in Bitcoin dropping its price by 10% to 50% depending on the availability of new information such as whether the China-backed currency would be on the blockchain.

China’s issuance of a digital currency would make monitoring the flow of funds easier for the PBoC to have greater control over its use. Also, as there has been a wider embracing of digital currencies by financial institutions globally, China is one of the major countries seeking to introduce their version to improve efficiency and greater transparency in the global payment system and to stem capital outflow which reached an estimated $843 billion in the 11 months through November 2016 according to a Bloomberg estimate.

However, despite being a major determinant of Bitcoin price and considering the regulatory measures being put in place in the country, the Business Development Lead of a leading Japanese Bitcoin exchange, Coincheck, thinks China’s proposed release of its digital currency would only attract more interest to Bitcoin rather than reduce its value.

Kagayaki Kawabata notes to 8btc via email.

“Chinese regulators are not encouraging bitcoin adoption, but are also not forbidding it. The release of China’s digital currency will empower Chinese government enabling them to regulate the flow of money even more. I think this movement will accelerate demand for a decentralized network like bitcoin attracting interest from people living in a country with strict monetary policy.”

This outlook will fit more perfectly if the digital currency to be introduced is controlled by China in a centralized system and is not totally different from the fiat that is available today which is prone to inflation hence likely to drive users to Bitcoin as an alternative.

Since China’s Bitcoin trading volumes dropped by approximately 33% after PBoC’s regulatory checks on exchanges, Japan has taken over as the top Bitcoin trading market having overtaken the US earlier in the second spot. Kawabata thinks the situation which they had not expected would be the case some two years ago, will remain the same as long as the trend continues.

He says:
“After the suspension of withdrawal, the liquidity of Bitcoin plunged in China. Chinese bitcoin traders suddenly couldn’t trade like before looking for a market with high liquidity. If Chinese government and other countries decide to strictly regulate bitcoin, it can bring in traders all around the world to Japan uplifting bitcoin market in Japan even more.”

With top Chinese exchanges such as BTCC, OKCoin and Huobi resuming full scale operations in coming days, they are expected to make frantic efforts to reclaim their dominance in the market not only from traders that have switched to Japan but also those that now look to the over the counter market for their transactions especially LocalBitcoins users. Latest figure shows that more than CNY50 million was traded through the online Bitcoin marketplace in the week ending February 25.