Having long been advocates of Bitcoin (ever since Sept. 2015 when it traded at $230) for the simple reason that we were confident the digital currency would eventually become China’s favorite means of circumventing capital controls – precisely as has transpired – two months ago we warned that the unprecedented surge which made bitcoin the best performing asset in the past year with a 5x return, may be ending as “China Prepares To Impose Curbs, “Capital Controls” On Bitcoin.”
Since then, and especially over the past week, China has launched a series of incremental steps designed to do just that, which culminated on Friday when China’s central bank issued a statement calling the changes in the virtual currency “abnormal”, and said authorities have required the trading platform to operate in compliance. They urged the platform to “probe investors’ behavior and to “rectify misbehavior.”
The statement hit shortly after China FX regulators, SAFE, said it would begin scrutinizing fund outflows via Bitcoin, as China sought to close this final gaping capital outflow pathway.
Furthermore, according to China Daily, China’s financial services authorities required major executives of the Shanghai-based bitcoin trading platform BTCC on Friday to “rectify misbehavior in the trading of the virtual currency”, without clarifying precisely what this means, and to raise awareness of risks as the value of bitcoins experienced wild fluctuations.
China’s mass speculators flocked to the bitcoin market in recent days in a bid to gain from its fast appreciation, which rose 200% in 2016. However, after rising in near-exponential fashion over the past few weeks without any corrections, Bitcoin’s value fluctuated by more than 30 percent within the past two weeks as concerns of Chinese interference first emerged and were then confirmed. .The statement said authorities would like to reaffirm that the bitcoin as a virtual currency which cannot and shall not be regarded as currency in circulation.
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It is unclear if the PBOC has successfully burst China’s latest bubble: According to data from the Shanghai-based bitcoin trading exchange, BTCC, more than 100 new investors started trading the virtual currency in the past three days, a fast growth compared to some 20 new investors before October in 2016.
“This trend shows that the bitcoin market’s appeal has been rising to a new level,” said a market review by BTCC dated Jan 4.
Feng Xin’an, 43-year-old sales manager with Shanghai-based Maoxin Trade Ltd, said he invested some 135,000 yuan ($19,515) in the bitcoin market as he regards bitcoin as a “haven asset”.
“The young generation, like my son and his friends, love to pay with digital currencies. Their demand for bitcoin can grow further, as I observe,” he said.
Meanwhile analysts continue to warn that bitcoin is not a tool that “guarantees” yield, and warn new investors who have limited knowledge, that entering the market blindly could be risky.
“Investors should always remember that bitcoin lost more than 75% of its value in 2013. We do not recommend it as a long-term investment tool, particularly because of compliance concerns,” said Zhang Yufang, investment adviser with Shanghai Shangding Investment Consultancy.
Then again, we are talking about Chinese bubble blowers: a legendary class of momentum chasers who will take any trend far beyond the level of max pain before allowing it to burst in a spectacular supernova of selling, in which the slowest sellers end up suicidal, either literally and metaphorically, before moving on to the next pre-bubble asset.
Following the PBOC statement, Bitcoin tumbled as low at 5,555 Yuan, or just above $800, before rebounding modestly as a new batch of BTFDers emerged.