7 ms·

China and the soaring price of Bitcoin

57 points by npalli 13y ago

IgorPartola 13y ago
So the question is whether BTC jumping from 200 USD to 600 USD in under two weeks is a bubble or if BTC finally found its calling in China.
- paulbaumgart 13y ago
  http://www.reddit.com/r/Bitcoin/comments/1q41wq/the_bitcoin_hype_cycle/ http://www.reddit.com/r/Bitcoin/comments/1q41wq/the_bitcoin_...
  - jackgavigan 13y ago
    That's a very nice little application of behavioural finance to Bitcoin.
VMG 13y ago
Very interesting post. But one should keep in mind that there is also the possibility that the Chinese are buying Bitcoin as an investment.
- rms 13y ago
  I've been calling it "speculative saving" and think that such behavior is a large portion of the Chinese bitcoin economy. I think a lot of Chinese tech workers have realized that bitcoin is a far better investment than real estate in Beijing.
ericmsimons 13y ago
Okay, so with all of the talk about how China is buying more bitcoin than anyone else, why is the transaction volume not increasing accordingly? You can see it on the coinbase graph - https://coinbase.com/charts https://coinbase.com/charts - it's basically seen the same volume since April, with the exception of July.
- oscilloscope 13y ago
  Total output volume may be a useful metric, since people may have used a Bitcoin transaction to move Bitcoin from one exchange to another. But a large amount of Bitcoin can be sent in a single transaction. https://blockchain.info/charts/output-volume https://blockchain.info/charts/output-volume Another popular metric, since output volume can be pumped up by sending the same coins over and over gain, is Bitcoin Days Destroyed. https://blockchain.info/charts/bitcoin-days-destroyed-cumulative https://blockchain.info/charts/bitcoin-days-destroyed-cumula... http://bitcoin.stackexchange.com/questions/845/what-are-bitcoin-days-destroyed http://bitcoin.stackexchange.com/questions/845/what-are-bitc... Also transactions on the exchanges don't show up in the blockchain.
- simondlr 13y ago
  More and more off-chain transactions are happening as well: moving between accounts on exchanges, or moving between accounts on sites such as Coinbase.
- ashray 13y ago
  That's actually an interesting point. It's possible that people on BTC China are not in fact moving their bitcoins out of the exchange and selling them on another exchange to launder money. They're possibly holding bitcoins in their BTC China wallets. Those transactions will not influence the over all bitcoin transaction volume. Furthermore, per exchange volumes have been insanely high over the past few days. See: http://bitcoincharts.com/markets/ http://bitcoincharts.com/markets/ What you basically pointed out points towards the premise of the article being false. It's not money laundering, it's something else.
  - Anon84 13y ago
    > Those transactions will not influence the over all bitcoin transaction volume. Shouldn't there be a "MtGox wallet (say)" -> "chinese wallet" transaction somewhere in the blockchain?
    - ashray 13y ago
paulbaumgart 13y ago
"If you are long Bitcoin for any appreciable amount of time, it seems you are betting that the Chinese economy will do poorly and capital controls will remain. Then more people will be increasingly desperate to get more money out of the country. Or you may be betting that the Chinese use of Bitcoin to launder money will increase due to the mere spread of the idea, through social contagion." That's kind of silly. Bitcoin has many uses besides bypassing currency controls.
- stanleydrew 13y ago
  None of the other uses really justify the current price though. That's the point. Clearly the value of a Bitcoin is not $0. He's not claiming that. He's claiming that if you think it is worth more than the current price of $680, then you are essentially betting on Bitcoin's current Chinese swell to continue.
  - ashray 13y ago
    Markets tend to price in future usage. Are there indications that bitcoins will be extremely valuable in the future ? Yes. Is there progress being made every day with bitcoins ? Yes. Is there global potential for bitcoin to be used as some form of currency ? Yes. (it is already being used in small amounts in several places) Markets tend to price these things in. Investor sentiment is optimistic. Bitcoins current position certainly doesn't justify this price. But the market has priced in the future.
    - stanleydrew 13y ago
      Rational and stable markets will tend to price in future usage. But even those suffer bubbles every once in awhile. But that's beside the point. The argument being made is that the future usage being priced into Bitcoin in the current craze depends on China not doing things that would make it less useful to hold Bitcoin.
  - patrickk 13y ago
    Bitcoin is a asymmetric bet[1], your cost of buying is known (price you pay relative to local currency when you purchase BTC), and it will either go to 0 or could return x100 or x1000 in the longer term. It's somewhat analogous to spotting the subprime mortgage madness early prior to 2007 and placing asymmetrical bets via credit default swaps on mortgage backed bonds[2]. There could be a fatal flaw uncovered with Bitcoin making it go to zero, Satoshi Nakamoto's true motives could be revealed to be sinister etc., or it could become a major commodity/currency for much of the world's population so the current price is dirt cheap. That's what makes it so intriguing. I personally think of Bitcoin as like Napster. Revolutionary idea, scared the establishment shitless, but was ultimately crushed. However, P2P file sharing exploded in popularity afterward, and has proved impossible to stamp out since. I think whatever comes after Bitcoin will be ultra-resilient, will learn from Bitcoin's flaws, and will change how we think about economics, commerce and currencies. [1] https://news.ycombinator.com/item?id=6753060 https://news.ycombinator.com/item?id=6753060 [2] http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004 http://www.vanityfair.com/business/features/2010/04/wall-str...
gbog 13y ago
I asked some colleagues (I am the only foreigner in a 500-sized web company in Beijing) and they were a bit doubful about the money laundry reason invoqued in the article. Sure, there is a huge business in money laundering in China and, for example, contemporary art overvaluation is linked to this financial pressure. But still, this reason is not necessary to explain the hotness of BTC in China, because just summing the mass effect plus the Chinese appetence to play money-risking games is just enough.
- ashray 13y ago
  This. I've been trying to explain to people on r/bitcoin and r/bitcoinmarkets that I'm pretty sure that the Chinese have well polished ways and means of getting money out of China, in spite of capital controls. When the mafia figures out bitcoin is a good way to do this things will start looking quite different.
  - crystaln 13y ago
    > I'm pretty sure that the Chinese have well polished ways and means of getting money out of China What makes you "pretty sure"? Certainly some Chinese have sophisticated methods of exiting money, through overseas corporations and the like. However most Chinese do not, and there are many, many financially unsophisticated rich Chinese. The evidence is pretty clear that you are wrong. The 20-30% premium Chinese pay for bitcoin, and the inflated Chinese real estate market, both indicate the difficulty. Besides, I lived in China and faced this issue. It is not easy. Further, Chinese regulators are very smart. The capital controls are there for a reason, and they are effective and enforced.
    - ashray 13y ago
      If the Chinese regulators are so smart and capital controls are so tight, then how would the Chinese get money out via bitcoin ? What about the entire paper trail: a) from bank deposits/tenpay deposits to BTC China where they convert to bitcoins b) and then allegedly sell on a foreign exchange (bitstamp, maybe ?) c) following which they withdraw to an overseas bank account ? If we're talking about illegal money (not part of the banking system) then again BTC China isn't reportedly accepting any cash. So how would that work ? The evidence isn't really that clear. What we see is the Chinese buying a lot of bitcoins. There's no evidence that they then moved those bitcoins to a foreign exchange, cashed them out, and then moved that cash to an overseas bank account. Do you have anything at all that supports this ? Not even the bitcoin network transaction volume is in agreement with this kind of movement of coins.
nl 13y ago
This shows surprising naivety about what is happening in China. To generalise massively, Chinese aren't trying to move money out of China. Instead, they are trying to find any safe store of value, because they don't trust their banks. Chinese are desperate for any way to save money, because the four-grandparent policy (and no pension) means they need money in old age. The optimal solution for them is overseas real estate (see the real estate market in Hong Kong, Sydney & Vancouver). The non-optimal solution used to be domestic real-estate. This solution was less than ideal, because of the huge oversupply in the Chinese domestic market. Chinese investors are aware of that, but "happy" to lose some money, rather than all of it in the case of a bank (and additionally, inflation in China is ~8%, but banks only pay ~1% interest). It looks like Bitcoin is taking the place of some of that domestic real estate demand. Note this is only my personal theory, but based on observations from http://brontecapital.blogspot.com.au/2012/06/macroeconomics-of-chinese-kleptocracy.html http://brontecapital.blogspot.com.au/2012/06/macroeconomics-...
- netcan 13y ago
  This doesn't make sense to me. Bitcoin right now is an incredibly bad long term value store. Right now it's a speculative investment. Either it will succeed and demand for bitcoin will go even higher or it will fail and it will be worth nothing. It's like investing in some risky VC fund. It makes sense for people to have wildly different ideas about potential and risk, but it makes no sense to expect it to just stay where it is.
  - IgorPartola 13y ago
    I don't know. I've held it since I bought it at $13/BTC. Seems like so far I am doing OK.
    - netcan 13y ago
      You are doing more than OK ;) Risky investment doesn't mean bad investment. Startup equity can be a good investment too. I'm just saying bitcoin is not a safe value store, which is what nl was hypothesizing in his comment.
chj 13y ago
A report in 2012: 3/4 of bitcoins are not circulating. Not sure if this still is true today, but it does reveal something worrying: BTC is not a currency as you might think. http://eprint.iacr.org/2012/584.pdf http://eprint.iacr.org/2012/584.pdf
thisiswrong 13y ago
I'm not sure that the author of this article is correct. Why would the Chinese gvt push bitcoin, for it then to be used to undermine the Yuan? Doesn't make sense. From what bitcoin followers have been saying: the Chinese government has been indirectly supporting the rise and adoption of Bitcoin through state-run Bitcoin documentaries [1]. This is seen by some as China pushing for alternatives to the USD as a world reserve currency (following US gvt shutdown) [2]. [1] https://cryptocointalk.com/topic/226-cctv-bitcoin-documentary-china/ https://cryptocointalk.com/topic/226-cctv-bitcoin-documentar... [2] http://www.scmp.com/news/china/article/1330873/chinese-state-media-calls-de-americanised-world-after-us-shutdown?page=all http://www.scmp.com/news/china/article/1330873/chinese-state...
deleted 13y ago
[deleted]

57 points by npalli 13y ago

So the question is whether BTC jumping from 200 USD to 600 USD in under two weeks is a bubble or if BTC finally found its calling in China.

paulbaumgart 13y ago
http://www.reddit.com/r/Bitcoin/comments/1q41wq/the_bitcoin_hype_cycle/ http://www.reddit.com/r/Bitcoin/comments/1q41wq/the_bitcoin_...
- jackgavigan 13y ago
  That's a very nice little application of behavioural finance to Bitcoin.

VMG 13y ago

Very interesting post. But one should keep in mind that there is also the possibility that the Chinese are buying Bitcoin as an investment.

rms 13y ago
I've been calling it "speculative saving" and think that such behavior is a large portion of the Chinese bitcoin economy. I think a lot of Chinese tech workers have realized that bitcoin is a far better investment than real estate in Beijing.

ericmsimons 13y ago

Okay, so with all of the talk about how China is buying more bitcoin than anyone else, why is the transaction volume not increasing accordingly? You can see it on the coinbase graph - https://coinbase.com/charts https://coinbase.com/charts - it's basically seen the same volume since April, with the exception of July.

oscilloscope 13y ago
Total output volume may be a useful metric, since people may have used a Bitcoin transaction to move Bitcoin from one exchange to another. But a large amount of Bitcoin can be sent in a single transaction. https://blockchain.info/charts/output-volume https://blockchain.info/charts/output-volume Another popular metric, since output volume can be pumped up by sending the same coins over and over gain, is Bitcoin Days Destroyed. https://blockchain.info/charts/bitcoin-days-destroyed-cumulative https://blockchain.info/charts/bitcoin-days-destroyed-cumula... http://bitcoin.stackexchange.com/questions/845/what-are-bitcoin-days-destroyed http://bitcoin.stackexchange.com/questions/845/what-are-bitc... Also transactions on the exchanges don't show up in the blockchain.
simondlr 13y ago
More and more off-chain transactions are happening as well: moving between accounts on exchanges, or moving between accounts on sites such as Coinbase.
ashray 13y ago
That's actually an interesting point. It's possible that people on BTC China are not in fact moving their bitcoins out of the exchange and selling them on another exchange to launder money. They're possibly holding bitcoins in their BTC China wallets. Those transactions will not influence the over all bitcoin transaction volume. Furthermore, per exchange volumes have been insanely high over the past few days. See: http://bitcoincharts.com/markets/ http://bitcoincharts.com/markets/ What you basically pointed out points towards the premise of the article being false. It's not money laundering, it's something else.
- Anon84 13y ago
  > Those transactions will not influence the over all bitcoin transaction volume. Shouldn't there be a "MtGox wallet (say)" -> "chinese wallet" transaction somewhere in the blockchain?
  - ashray 13y ago

paulbaumgart 13y ago

"If you are long Bitcoin for any appreciable amount of time, it seems you are betting that the Chinese economy will do poorly and capital controls will remain. Then more people will be increasingly desperate to get more money out of the country. Or you may be betting that the Chinese use of Bitcoin to launder money will increase due to the mere spread of the idea, through social contagion." That's kind of silly. Bitcoin has many uses besides bypassing currency controls.

stanleydrew 13y ago
None of the other uses really justify the current price though. That's the point. Clearly the value of a Bitcoin is not $0. He's not claiming that. He's claiming that if you think it is worth more than the current price of $680, then you are essentially betting on Bitcoin's current Chinese swell to continue.
- ashray 13y ago
  Markets tend to price in future usage. Are there indications that bitcoins will be extremely valuable in the future ? Yes. Is there progress being made every day with bitcoins ? Yes. Is there global potential for bitcoin to be used as some form of currency ? Yes. (it is already being used in small amounts in several places) Markets tend to price these things in. Investor sentiment is optimistic. Bitcoins current position certainly doesn't justify this price. But the market has priced in the future.
  - stanleydrew 13y ago
    Rational and stable markets will tend to price in future usage. But even those suffer bubbles every once in awhile. But that's beside the point. The argument being made is that the future usage being priced into Bitcoin in the current craze depends on China not doing things that would make it less useful to hold Bitcoin.
- patrickk 13y ago
  Bitcoin is a asymmetric bet[1], your cost of buying is known (price you pay relative to local currency when you purchase BTC), and it will either go to 0 or could return x100 or x1000 in the longer term. It's somewhat analogous to spotting the subprime mortgage madness early prior to 2007 and placing asymmetrical bets via credit default swaps on mortgage backed bonds[2]. There could be a fatal flaw uncovered with Bitcoin making it go to zero, Satoshi Nakamoto's true motives could be revealed to be sinister etc., or it could become a major commodity/currency for much of the world's population so the current price is dirt cheap. That's what makes it so intriguing. I personally think of Bitcoin as like Napster. Revolutionary idea, scared the establishment shitless, but was ultimately crushed. However, P2P file sharing exploded in popularity afterward, and has proved impossible to stamp out since. I think whatever comes after Bitcoin will be ultra-resilient, will learn from Bitcoin's flaws, and will change how we think about economics, commerce and currencies. [1] https://news.ycombinator.com/item?id=6753060 https://news.ycombinator.com/item?id=6753060 [2] http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004 http://www.vanityfair.com/business/features/2010/04/wall-str...

gbog 13y ago

I asked some colleagues (I am the only foreigner in a 500-sized web company in Beijing) and they were a bit doubful about the money laundry reason invoqued in the article. Sure, there is a huge business in money laundering in China and, for example, contemporary art overvaluation is linked to this financial pressure. But still, this reason is not necessary to explain the hotness of BTC in China, because just summing the mass effect plus the Chinese appetence to play money-risking games is just enough.

ashray 13y ago
This. I've been trying to explain to people on r/bitcoin and r/bitcoinmarkets that I'm pretty sure that the Chinese have well polished ways and means of getting money out of China, in spite of capital controls. When the mafia figures out bitcoin is a good way to do this things will start looking quite different.
- crystaln 13y ago
  > I'm pretty sure that the Chinese have well polished ways and means of getting money out of China What makes you "pretty sure"? Certainly some Chinese have sophisticated methods of exiting money, through overseas corporations and the like. However most Chinese do not, and there are many, many financially unsophisticated rich Chinese. The evidence is pretty clear that you are wrong. The 20-30% premium Chinese pay for bitcoin, and the inflated Chinese real estate market, both indicate the difficulty. Besides, I lived in China and faced this issue. It is not easy. Further, Chinese regulators are very smart. The capital controls are there for a reason, and they are effective and enforced.
  - ashray 13y ago
    If the Chinese regulators are so smart and capital controls are so tight, then how would the Chinese get money out via bitcoin ? What about the entire paper trail: a) from bank deposits/tenpay deposits to BTC China where they convert to bitcoins b) and then allegedly sell on a foreign exchange (bitstamp, maybe ?) c) following which they withdraw to an overseas bank account ? If we're talking about illegal money (not part of the banking system) then again BTC China isn't reportedly accepting any cash. So how would that work ? The evidence isn't really that clear. What we see is the Chinese buying a lot of bitcoins. There's no evidence that they then moved those bitcoins to a foreign exchange, cashed them out, and then moved that cash to an overseas bank account. Do you have anything at all that supports this ? Not even the bitcoin network transaction volume is in agreement with this kind of movement of coins.

nl 13y ago

This shows surprising naivety about what is happening in China. To generalise massively, Chinese aren't trying to move money out of China. Instead, they are trying to find any safe store of value, because they don't trust their banks. Chinese are desperate for any way to save money, because the four-grandparent policy (and no pension) means they need money in old age. The optimal solution for them is overseas real estate (see the real estate market in Hong Kong, Sydney & Vancouver). The non-optimal solution used to be domestic real-estate. This solution was less than ideal, because of the huge oversupply in the Chinese domestic market. Chinese investors are aware of that, but "happy" to lose some money, rather than all of it in the case of a bank (and additionally, inflation in China is ~8%, but banks only pay ~1% interest). It looks like Bitcoin is taking the place of some of that domestic real estate demand. Note this is only my personal theory, but based on observations from http://brontecapital.blogspot.com.au/2012/06/macroeconomics-of-chinese-kleptocracy.html http://brontecapital.blogspot.com.au/2012/06/macroeconomics-...

netcan 13y ago
This doesn't make sense to me. Bitcoin right now is an incredibly bad long term value store. Right now it's a speculative investment. Either it will succeed and demand for bitcoin will go even higher or it will fail and it will be worth nothing. It's like investing in some risky VC fund. It makes sense for people to have wildly different ideas about potential and risk, but it makes no sense to expect it to just stay where it is.
- IgorPartola 13y ago
  I don't know. I've held it since I bought it at $13/BTC. Seems like so far I am doing OK.
  - netcan 13y ago
    You are doing more than OK ;) Risky investment doesn't mean bad investment. Startup equity can be a good investment too. I'm just saying bitcoin is not a safe value store, which is what nl was hypothesizing in his comment.

chj 13y ago

A report in 2012: 3/4 of bitcoins are not circulating. Not sure if this still is true today, but it does reveal something worrying: BTC is not a currency as you might think. http://eprint.iacr.org/2012/584.pdf http://eprint.iacr.org/2012/584.pdf

thisiswrong 13y ago

I'm not sure that the author of this article is correct. Why would the Chinese gvt push bitcoin, for it then to be used to undermine the Yuan? Doesn't make sense. From what bitcoin followers have been saying: the Chinese government has been indirectly supporting the rise and adoption of Bitcoin through state-run Bitcoin documentaries [1]. This is seen by some as China pushing for alternatives to the USD as a world reserve currency (following US gvt shutdown) [2]. [1] https://cryptocointalk.com/topic/226-cctv-bitcoin-documentary-china/ https://cryptocointalk.com/topic/226-cctv-bitcoin-documentar... [2] http://www.scmp.com/news/china/article/1330873/chinese-state-media-calls-de-americanised-world-after-us-shutdown?page=all http://www.scmp.com/news/china/article/1330873/chinese-state...

deleted 13y ago

[deleted]