
China and the soaring price of Bitcoin - npalli
http://marginalrevolution.com/marginalrevolution/2013/11/china-and-the-soaring-price-of-bitcoin.html
======
nl
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-...](http://brontecapital.blogspot.com.au/2012/06/macroeconomics-
of-chinese-kleptocracy.html)

~~~
netcan
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.

~~~
ihsw
It makes perfect sense -- but only if you look at it objectively. The
speculators will trade on the hourly waxing and waning exchange rates, but the
_savers_ will look at 52-week moving averages.

If you judge BTC simply by the latter, and have the patience for re-evaluating
your BTC finances annually or bi-annually, then you'd be in a pretty good
spot.

Sure it fluctuates an uncomfortable amount on a regular basis, but it's a
fairly consistent trend otherwise.

~~~
UweSchmidt
Not at all, if "...or it will fail and it will be worth nothing" is a possible
scenario. If you buy every week, any catastrophic event that makes bitcoin
worthless would still wipe out your retirement savings before your bi-annual
reevaluation is due.

------
paulbaumgart
"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
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
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
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.

------
gbog
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
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
> 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
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.

~~~
crystaln
Nobody knows or understands why the Chinese government is allowing so much
purchase of bitcoin. I suspect they will not continue to allow it.

I did not say that Chinese were buying other currencies with their bitcoin en
masse although I'd be surprised if many were not. Perhaps they are just
diversifying. Some may have no account in place to sell bitcoin for other
currencies.

------
ericmsimons
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.

~~~
ashray
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
> 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
There should be, if they chose to withdraw their bitcoins from Gox. But
assuming that the article is right, there would be another transaction that
moves the money from their private wallet to bitstamp/another exchange as
well.

Basically all there is evidence of right now is that the Chinese are buying
tons of bitcoins. No evidence of selling/moving as such.

It's not possible to use Gox for USD withdrawals at the moment so I don't
think they'll try that anyway.

------
thisiswrong
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-
documentar...](https://cryptocointalk.com/topic/226-cctv-bitcoin-documentary-
china/) [2] [http://www.scmp.com/news/china/article/1330873/chinese-
state...](http://www.scmp.com/news/china/article/1330873/chinese-state-media-
calls-de-americanised-world-after-us-shutdown?page=all)

------
IgorPartola
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
[http://www.reddit.com/r/Bitcoin/comments/1q41wq/the_bitcoin_...](http://www.reddit.com/r/Bitcoin/comments/1q41wq/the_bitcoin_hype_cycle/)

~~~
jackgavigan
That's a very nice little application of behavioural finance to Bitcoin.

------
VMG
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
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.

------
chj
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)

