Chinese policy has a massive impact on Bitcoin price, trading volume, and perceived legitimacy – but as the government’s policy on digital currencies is ambigious, Bitcoin’s future in China remains uncertain.

The US-China Economic and Security Review Commission reached this conclusion in a research brief published earlier this week. The report examined Bitcoin’s history in China, documenting the evolution of Chinese official (and actual) attitude toward Bitcoin and exploring some of the factors for its popularity – and potential for the future.

Here are five things the USCC report said about Bitcoin and China.

1. China was a big part of Bitcoin’s surge to peak value.

China is packed with mobile phone users, techies, and investors eager to ride the latest and greatest technology waves. Many of these people first discovered Bitcoin when state TV aired a half-hour documentary on it in May 2013.

By September, China was hosting the second-highest number of Bitcoin nodes in the world. In October, a number of massive Chinese e-commerce sites started accepting Bitcoin as payment – and that same month, trade in Chinese yuan passed those in US dollars, and the price of Bitcoin went way up. Chinese Bitcoin exchanges brokered the biggest volume of trading in the world last year.

2. China’s unfriendly policies on Bitcoin have been a big part of its drop in price.

Bitcoin price dropped in December when the Chinese state bank banned financial institutions from dealing in Bitcoin and ordered its biggest payment processing companies to halt Bitcoin transactions. BTC China, the country’s top exchange, had to stop accepting deposits in yuan.

“The effects of BTC China’s closure devastated the market: the price of Bitcoin in China toppled more than 50 percent from its peak on December 1,” the report said.

More restrictions on Bitcoin payment issued by the state bank in March and April this year knocked global Bitcoin prices by another 7.77 percent.

3. BUT…Chinese official policy doesn’t necessary match the reality of enforcement.

The three biggest Chinese Bitcoin exchanges said they never received orders from the state bank to close their Bitcoin accounts.

In April, the head of China’s state bank said that China could not ban Bitcoin, as it wasn’t started by the central banks. However, many Chinese Bitcoin exchanges said they have been pressured by the central bank into shutting down.

The move seems to signal that the government remains unfriendly toward Bitcoin, but prefers unofficial intimidation and pressure to official regulation.

“The true attitude of China’s regulators toward Bitcoin is characteristically ambiguous; while the PBoC [state bank] pressures banks and Bitcoin companies behind closed doors, its officials claim openly that China cannot ban Bitcoin,” the report said.

Still, there are some optimistic signs for Bitcoin’s future in China: The CEO of BTC China has installed the country’s first physical Bitcoin ATM in Shanghai (getting around the law by operating using a mobile phone app), and Beijing successfully hosted the first Global Bitcoin Summit earlier this month (even though five major Chinese exchanges dropped out of participation because of pressure from the central bank).

4. China dominates the Bitcoin market for two reasons: e-commerce and mining.

If China’s not so friendly towards Bitcoin, why is it still so big there? First, the Chinese dominate global e-commerce and online payment systems. The Chinese spent more than Americans on e-commerce last year, and the market’s still growing. Bitcoin is an obvious fit for this industry.

Second, China has a massive online gaming community (55.5 million gamers in 2009), many of whom are actively engaged in “gold farming” – a process of earning virtual money to use in the games as cash.

The concept is similar, in fact, to mining bitcoins – which may have primed Chinese gamers to get involved.

“Gold farming can be seen as a precursor to the practice of ‘mining’ for Bitcoin,” the report said, noting that though it’s hard to measure the number of Bitcoin miners in China, multiple experts estimate that the country is a major mining hub.

5. If things go south for Bitcoin in China, the market will probably move to Hong Kong.

Hong Kong, as a special administrative region separate from China, enjoys different laws, which for Bitcoin spell relief.

Hong Kong considers Bitcoin a virtual commodity (not a currency) and does thus does not regulate it. Several big Bitcoin exchanges and ATMs are now operating in Hong Kong, which “is positioned to become a global hub for Bitcoin entrepreneurs and businesses,” the report said.

Hong Kong’s trade volume is still relatively low, signaling that Chinese users and investors haven’t started en masse moving their holdings there.

Still, the report concludes, in case of future regulation from the Chinese government, “Hong Kong appears primed for Bitcoin’s successful takeoff as a medium of exchange.”

Chinese Bitcoiners, stay tuned.

For the full USCC report, click here.