When the People’s Bank of China descended on the country’s three largest Bitcoin exchanges in early January 2017, the cryptocurrency world held its breath. BTCChina, the biggest of the trio, found itself at the epicenter of a regulatory storm that would ultimately redefine how governments interact with digital asset platforms. BTCC CEO Bobby Lee emerged as a surprisingly vocal advocate for the very regulation that threatened his business, telling Business Insider that oversight of Bitcoin exchanges was not a question of “if” but “when.”
TL;DR
- BTCC CEO Bobby Lee declared Bitcoin exchange regulation “inevitable” during the PBOC investigation
- Chinese exchanges voluntarily adopted 0.2% trading fees and ended margin lending ahead of regulatory mandates
- PBOC reportedly found “hidden risk” at BTCC and accused it of “operating beyond its scope” — claims Lee denied
- Lee downplayed capital flight concerns, arguing Bitcoin trades are “always trade neutral” within China
- The probe was expected to conclude by February or March 2017, though its effects would last much longer
The Emergency That Wasn’t on the Agenda
Bitcoin regulation had not been a priority item for the PBOC heading into 2017, according to Lee. But the explosive price action at the end of December and the first days of January changed everything. Bitcoin surged past $1,000, driven largely by Chinese trading volume that accounted for an estimated 98% to 99% of global activity. The price spike was so sharp that it converted a simmering concern into an urgent policy matter.
“Bitcoin regulation may not have been on their agenda for 2017, but given the price spike in early January, it became an emergency topic,” Lee explained during an interview at London Blockchain Week. “They’ve seen the price go up a lot. They want to make sure the price doesn’t go crazy, create a bubble, and hurt a lot of investors. They’re a little bit unhappy with how the price goes up too much so they’ve been giving us some scrutiny.”
The Capital Flight Debate
One of the PBOC’s primary concerns was that Bitcoin was being used to circumvent China’s strict capital controls. With a $50,000 annual limit on foreign currency purchases, Chinese citizens facing a depreciating yuan had turned to Bitcoin as a conduit for moving wealth overseas. The PBOC was particularly sensitive to this issue given that China’s foreign exchange reserves had been declining amid sustained capital outflows throughout 2016.
Lee pushed back forcefully against the capital flight narrative. “It is my observation that it’s not happening,” he said. “The reason is that bitcoin transactions are always trade neutral. For every one bitcoin that’s purchased in China, one bitcoin is sold in China.” He compared the dynamic to aircraft at an airport: “Sure, every day there’s 60 aeroplanes that take off but every day there are 60 airplanes that land.”
His argument was that while individual Bitcoins might theoretically cross borders, the fiat currency used to purchase them remained within the Chinese financial system. “The money that the buyers used for the bitcoin gets handed to the sellers, who still use local money. That’s not going to affect the foreign currency reserves of China,” Lee maintained.
Proactive Compliance: The 0.2% Strategy
Rather than waiting for the PBOC to impose specific requirements, BTCC and its competitors moved preemptively. The exchanges introduced a flat 0.2% fee on every transaction, ending years of zero-fee trading that had attracted enormous volume but also enabled wash trading and market manipulation. Lee was candid about the strategic calculus: “They were not suggested. We knew these were things that they might do so we did it first.”
The exchanges also eliminated margin lending, which had allowed traders to borrow funds and amplify their positions by several multiples. This leverage had been a key contributor to Bitcoin’s parabolic rise above 8,000 yuan, and its removal was designed to reduce speculative fervor. Lee framed the changes as beneficial for the industry’s long-term health: “We think trading fees will calm down the market, lower trading volumes a bit, and allow a more healthy bitcoin exchange market.”
Signaling to the Market
One of the most revealing aspects of the PBOC’s approach was its decision to publicize the investigation. According to Lee, the central bank had been meeting with exchanges for two to three years, but this time was different. “They wanted to publicise it to send a signal to the market that the PBOC is still the regulatory body that’s in charge,” he said. The public nature of the probe was itself a regulatory tool, designed to cool overheated markets through the sheer force of regulatory attention.
At the time, Bitcoin was trading around $911, with a total market capitalization of approximately $14.7 billion. Ethereum sat at $10.29, and the broader cryptocurrency market was worth roughly $16.6 billion. Litecoin traded at just under $4, Monero at $13.47, and XRP at a fraction of a cent. These figures would seem quaint by year’s end, when Bitcoin would approach $20,000 and the total market cap would exceed $600 billion.
Why This Matters
The BTCC episode of January 2017 established a playbook that has been replicated countless times since: a government signals regulatory intent, exchanges rush to self-regulate, and the market absorbs the shock before eventually moving higher. Lee’s prediction that regulation was “inevitable” proved prophetic, not just for China but globally. The fundamental tension he identified — between the decentralized promise of Bitcoin and the practical necessity of regulated on-ramps — remains the defining challenge of the cryptocurrency industry. His observation that the PBOC’s public investigation was itself a form of market manipulation, designed to cool prices through signaling rather than direct intervention, offered an early lesson in how regulators would learn to shape crypto markets without banning them outright.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency markets are highly volatile, and past performance is not indicative of future results. Always conduct your own research before making investment decisions.
Bobby Lee saying regulation was “inevitable” while his exchange was being raided is either incredible composure or incredible PR. Maybe both.
bobby_lee_fan_ it was PR. pure survival instinct dressed up as composure. BTCC Tokyo launched 10 months later and that was the plan the whole time
Lee calling regulation inevitable while PBOC was literally in his office was a power move. buy time by cooperating publicly
definitely both. Lee knew that cooperating publicly was his best chance of keeping BTCC alive. the exchanges that fought back got shut down way faster
The PBOC accusing BTCC of “operating beyond its scope” was such a vague charge. Could mean anything. Classic regulatory intimidation tactic.
Lee arguing Bitcoin trades are “always trade neutral” within China was technically correct but missed the point. The PBOC cared about the narrative, not the net flow.
Lee saying trades are always trade neutral within China was technically right but completely missed the point. PBOC was never about net flow, it was about controlling the narrative
Ingrid W. every PBOC charge is intentionally vague. operating beyond scope could mean anything from margin lending to having too many users. classic intimidation
classic move. keep the charge vague enough that you can interpret it however you want later. PBOC wasnt investigating, they were sending a message
PBOC wasnt investigating anything. they were sending a message to every exchange in china. bobby lee just read the room fastest
reg_watch_ Lee reading the room fastest is why BTCC lasted until 2018 while OKCoin and Huobi kept fighting. cooperation bought maybe 12 extra months of operations
the voluntary 0.2% fee was a protection payment. exchanges that self-regulated survived 12 extra months. those that fought got shuttered immediately
the voluntary 0.2% fee was such a smart play. exchanges that self-regulated survived longer than the ones that fought back
Viktor P. the 0.2% voluntary fee was genius. it cost them some volume but bought 12 extra months of operations while competitors got squeezed. Lee played the long game
0.2% trading fee was nothing. the real damage was killing margin lending. that removed all the liquidity overnight and volume never recovered
Mei-Ling C. they basically castrated the exchange ecosystem in 3 weeks. Huobi and OKCoin never recovered domestically either
Bobby Lee calling regulation inevitable while quietly moving operations overseas was the real strategy. BTCC Tokyo launch in late 2017 was the exit plan all along
Karl J. BTCC Tokyo in late 2017 was 100% the exit plan. Lee cooperated publicly while moving infrastructure overseas. textbook regulatory arbitrage
Bobby Lee calling regulation inevitable while PBOC was literally in his office reading his tx logs is the most crypto CEO thing ever
prc_archive_ Bobby Lee smiling for cameras while PBOC was reading his transaction logs is why every crypto CEO should be doubted on principle. cooperate publicly exit quietly
Bobby Lee calling regulation inevitable while his exchange was accused of operating beyond scope is peak crypto CEO energy. smile for the cameras while the lifeboats leak
0.2% voluntary trading fee was smart but killing margin lending is what actually destroyed liquidity. volume never recovered after that
voluntarily adopting 0.2% fees and ending margin lending before being told to was smart. BTCC bought themselves a few months and still got shut down anyway
btcc basically invented the china exchange playbook that every offshore exchange copied later. move operations, swap domains, keep trading. huobi and okex took notes
shanghai_ghost_ the domain swap trick was actually pioneered by btc-e before btcc. but yeah btcc made it mainstream
PBOC probe was the warning shot everyone ignored. 4 years later china banned mining entirely. same pattern of gradual escalation