China has long played an outsized role in the world of cryptocurrencies. Whether (formerly) acting as one of the central hubs of digital currency mining, thanks to massive operations capitalizing on cheap electricity, or as a primary market for cryptocurrencies of all kind, the country has contributed significantly to the growth of digital currencies as an industry over the last several years.

Now, as cryptocurrencies have fallen overall in the past six months or so, analysts are beginning to attribute some of the decline to China as well. A recent report in Britain's Express newspaper indicates that China's central bank confirmed bitcoin (BTC) transactions taking place in RMB have fallen dramatically in the last year. How does the situation in China impact the cryptocurrency market throughout the rest of the world?

Decline in Trading

In September 2017, China's cryptocurrency market occupied as much as 90% of the world's total trading volume, according to the report. Not even a year later, the country's share of global trading is under 1%. There are relatively straightforward explanations for this: Chinese regulators issued a complete ban on trading in February of this year. At that point, the People's Bank of China (PBOC), acting as central regulatory authority for the country, announced that it would "block access to all domestic and foreign cryptocurrency exchanges and ICO websites."

There are other reasons why trading may have declined as well, including some that actually predate the ban. The report indicates that "experts in China fear[ed] losing control over the rapidly emerging cryptocurrency market" as it gained volatility toward the end of 2017. Now, the PBOC has confirmed that it allowed for a zero-risk exit for close to 90 digital currency exchanges and almost as many ICO trading platforms since September.

Zhongchao Credit Card Industry Development Co. blockchain analyst Zhang Yifeng explained that "the timely moves by regulators effectively fended off the impact of sharp ups and downs in virtual currency prices and led the global regulatory trend."

China Paved the Regulatory Way

Indeed, China was one of the first nations to take dramatic action to ramp up regulation of the cryptocurrency world. As of this point, it remains one of the most extreme countries in terms of the severity of its regulatory action. But, although many other countries, the U.S. included, have not gone so far as to ban ICOs and cryptocurrency exchanges outright, they nonetheless may have been influenced by China's move in this direction.

It's also important to consider the role that the Chinese market may have had on the digital currency space in between September 2017 and February 2018, when the ban took place. CryptoDaily suggests that increased interest among Chinese investors during this time may have "encouraged the price of bitcoin to skyrocket." In turn, sky-high prices prompted more Chinese investors to become interested in the space. With so much interest among the Chinese investor population, it may have been that the authorities grew concerned about bitcoin potentially challenging the yuan. The response? Implement a ban in order to tamp down interest and restore the earlier status quo. In the process, the bitcoin "bubble," whether technically meeting the definition of that term or not, collapsed, and BTC prices fell by more than 60% early in 2018.

There is likely much more to the story of China's role in cryptocurrency markets than this. For instance, it's unclear of 90% of all bitcoin trading came through China in September of last year, or if it was only 90% of all BTC-RMB trading. The former would likely suggest a much more dramatic role for the Chinese investor base in the global bitcoin market than the latter.