Bře 23

The China Syndrome: Are California’s Bitcoin Exchanges Doomed?

· March 23, 2017 · 4:30 am

Increasing regulatory pressures have eviscerated trading volumes across Bitcoin exchanges in China. Bitcoin’s shifting volumes and price are signaling that further disintermediation is inevitable, which could also spell trouble for Western exchanges like Coinbase and Kraken.


China Regulates Bitcoin Exchanges

Increasing regulation of the Bitcoin market in China by the People’s Bank (PBoC) has characterized the first Quarter of 2017.

First they banned margin-trading. Then they halted withdrawals of Bitcoin from Chinese exchanges in February. The latest news is that withdrawals are expected to resume soon provided a strict set of KYC/AML conditions are met.

The nature of the ban on withdrawals has been widely misunderstood.

Note that bitcoins were not trapped. Trading continued the whole time on Chinese exchanges – purchases and sales were allowed. The PBoC never disallowed the withdrawal of cash from Chinese exchanges. So Chinese who wanted to exit could simply sell their Bitcoins and withdraw their renminbi.

The China Syndrome

That said, there were several consequences of the Chinese regulation in the global Bitcoin market. I call this set of results or symptoms that occur in tandem ‘the China Syndrome’.

China Bitcoin Core attack

We can expect more and more financial regulators to intervene ever more intrusively into Bitcoin markets globally, and we can expect to see a similar syndrome of effects every time.

So, as the IRS demands that Coinbase reveal all its customer records, we can expect the same China Syndrome set of consequences.

What were the results of increased regulation of exchanges in China?

  1. The share of global trading volumes of Chinese exchanges collapsed.
  2. There was terrific disintermediation. Over The Counter (OTC) trading volumes in China exploded. This is trading that is done P2P, off-exchange. The two most popular OTC platforms in China are LocalBitcoins and Bitkan.
  3. Bitcoins started to trade on Chinese exchanges at a significant discount to global prices. Previously Bitcoin had nearly always traded at a small premium on China exchanges to the global price. (Zerohedge claimed ad nauseam this was evidence of demand for Bitcoin as a vehicle for capital flight, though that’s refuted by BTCC CEO Bobby Lee.)
  4. Bitcoin traded OTC in China has achieved a premium over both the price on Chinese exchanges and indeed over global prices. It is the most expensive Bitcoin in the world!
  5. Bitcoin has recently started to trade on LocalBitcoins at a premium to exchanges worldwide where previously there was a discount.
  6. The logical endgame of disintermediation is a black market. For example, what naturally happens in an economy such as Venezuela or Nigeria where banks (the middleman) fail to provide the market-clearing price for dollars as a result of capital controls? People will disintermediate their asses and sell on the black market of course!

[Data verifying these statements about prices is at my website, Blocklink.info. Select the ‘Black Market FX’ tab.]

Disintermediation is Inevitable

Definition from Investopedia:

Disintermediation, in finance, is the withdrawal of funds from intermediary financial institutions, such as banks and savings and loan associations, to invest them directly. Generally, disintermediation is the process of removing the middleman or intermediary from future transactions.

There remains a powerful need among Chinese to trade Bitcoin that the PBoC cannot stifle. PBoC tries to block one avenue and wily Chinese users disintermediate their way through. It is like the funfair game of whack-a-mole.

As the middleman  – the Chinese exchanges – was failing to meet the need to freely trade Bitcoin, Chinese users cut out the middleman. Here are two charts to illustrate the extent of the disintermediation. Chinese exchanges have become the sick men of global exchanges, and LocalBitcoins China is experiencing explosive growth..

12

coin-dance-localbitcoins-cny-volume

Note that this second chart greatly understates OTC trading in China for several reasons.

One, it’s possible that the Bitkan platform is even more popular than LocalBitcoins in China. Bitkan reported a twelvefold increase in trading volumes in Q1 2017 in this interview with Bitcoinist.

Two, once buyer and and seller establish a relationship through LocalBitcoins or Bitkan, those two parties might choose to transact thereafter privately, without using the platform, so saving on escrow and platform fees.

Three, you also tend to get P2P Bitcoin deals being negotiated on popular financial and exchange forums, like the Chinese equivalents of Craigslist.

Effects of Disintermediation on Prices

This effect has received less attention than the effect on volumes. In Q1 2017 Bitcoins have traded on Chinese exchanges at a significant discount to global prices. Previously Chinese Bitcoin had always traded at a small premium to the global price.

Premium before Q1 201713

Discount after the actions of the PBOC:

My research shows that a) Bitcoin traded OTC in China has achieved a premium over both the price on Chinese exchanges and over global prices and b) Bitcoin has started to trade on LocalBitcoins as a premium to exchange prices worldwide where previously there had been a discount.

china2

There is not the space here to go into the details, which can be viewed at my site Blocklink.info. In summary, at a snapshot on March 22, 2017 07:00 GMT, these prices prevailed when the Global Bitcoin price was $1,064 USD:

China

  • Chinese exchanges: $1,038 (discount to Global price)
  • Chinese LocalBitcoins: $1,114 ($76 premium to CN Exchanges’ price, or 7.3%)

America

  • US Exchanges: $1,064 (same as Global price)
  • US Local Bitcoins: $1103 ($38 premium to global price, or 3.6%)

Previously analysts argued that there was naturally a discount on OTC markets as a result of the greater convenience that the exchanges offered their clients, and of the greater counterparty risk intrinsic in an OTC trade. But it now seems to be the case that the force is with OTC trading, and that users are prepared to pay a premium OTC to achieve greater privacy and control over their Bitcoins.

Decentralized Exchange is the Future

Exchanges in the San Francisco, Japan and Europe have been doing terrific business in 2017 and the money is rolling into their coffers in the form of trading fees and the income they derive from their Bid-Offer spread.

Oh, they are living the life of Riley in San Francisco’s Financial District! Knocking back the $20 libations at Rickhouse Bar on Kearny Street and at Comstock Saloon. They think nothing of buying $75 steaks. The toilets are dusty with cocaine powder. But threats similar to those that have hit the solvency of OKCoin, BTCC etc. await Coinbase, Kraken, Bitfinex and the other big hitters. There will be blood.

coin-dance-bitsquare-all-volume

The future looks rosier for the more decentralized avenues like Bitsquare, whose global volumes have been rising steadily, and for wallets with greater privacy like Samourai.

Further disintermediation in Bitcoin trading is inevitable. That is what the shifting volumes and the price mechanism in the Bitcoin market are signaling.

And note this: the ultimate disintermediation is black market/criminal activity. For example, drug users disintermediate the failure of pharmacies to provide Grade A meth and crack by buying from the street corner or on Dark Markets. That is where we might buy our Bitcoin 3-5 years from now, possibly from wild-eyed, shaggy-haired ex-employees of Kraken.

Do you agree that centralized exchanges will become obsolete and unable to compete with decentralized avenues? Share your thoughts below!


Images courtesy Coin.dance, Twitter, Shutterstock, Blocklink.info

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Bře 07

BitKan: Our Volume Grew ‘Twelve Times’ Since PBoC Halted Withdrawals

· March 7, 2017 · 12:00 pm

2,631 views

Bitcoinist spoke with Leon Liu, the CEO of BitKan, a Chinese P2P Bitcoin trading service, to get a better idea on the current situation following the recent regulatory clampdown on Bitcoin exchange withdrawals in the country.


Bitcoinist: What kind of trading services does BitKan provide?

Leon Liu (LL): BitKan provides P2P bitcoin trading services with broker match-making to save time for our users. During a trade, BitKan acts as an escrow service, guaranteeing funds delivery for both sides. Users can also trade small amounts in five minutes.

Bitcoinist: How has the recent restrictions imposed by the People’s Bank of China (PBoC) on crypto-exchanges impacted your operations?

LL: The PBoC focused on the three biggest exchanges. PBoC actions did not have any impact on us because it focuses on money laundering, currency outflows and pyramid schemes. We do not provide such services to our customers. That’s why we weren’t impacted. Right now, customers can use our platform to withdraw Bitcoin after 3 days.

Bitcoinist_PBOC

Bitcoinist: China’s overall Bitcoin trading volume has seen a significant drop due to these PBoC inspections. Have traders gone abroad or have they simply moved off-exchange and into P2P and OTC markets? Have you seen an uptick in P2P, OTC trading as a result?

LL: There are two kinds of customers: the first kind buys bitcoin and uses it. So, they need to withdraw bitcoin. Yes, some of these people went to other small markets, where withdrawals weren’t suspended.

Some went to the OTC market. It is difficult for Chinese people to access foreign markets. Therefore, these customers cannot buy Bitcoin abroad using CNY. Also it is difficult to exchange CNY to USD in China.

Our volume grew by twelve times [since withdrawals were suspended].

The second kind of customer trades bitcoin, buying and selling it to earn a profit. In fact, most people speculate with the price this way, and then they withdraw CNY. And yes, our volume grew by twelve times.

Bitcoinist: Who is your typical customer?

LL: We have two kinds of customers. Those new to bitcoin and who buy their first bitcoin on our platform; and then there are users who already have basic knowledge about bitcoin and who do not want to trade on exchanges.

coin-dance-localbitcoins-cny-volume

Bitcoinist: How does your P2P trading service compare to the increasingly popular LocalBitcoins, for example, which has seen exponential growth in China following the suspension of withdrawals?

LL: The first step for our customers is registration via email. If they want to trade on our platform they need enter their cellphone number. If users want to trade more that 5 BTC a day – they need to comply with KYC and AML guidelines.

The difference with LocalBitcoins is that BitKan offers a mobile phone app that is easy to use. Second, all traders must go through the KYC process, to ensure safe trading.

BitKan is better localized for the Chinese market compared to LocalBitcoins

Third, trading is faster than on LocalBitcoins and a trade can go through within a minute. Fourth, BitKan is better localized for the Chinese market compared to LocalBitcoins.

Bitcoinist: So customers can buy up to 5 BTC with just their email address?

LL: Yes, the maximum is 5 BTC without having to submit any personal information.

Bitcoinist: Do you agree with BTCC CEO Bobby Lee that Bitcoin is not being used to bypass Chinese capital controls – that it’s mostly hype created by the media? 

LL: We agree with Bobby Lee. This goes back to 2013 when the government said that Bitcoin is a commodity. It can not be used by companies for payment. Now, Bitcoin is used mainly for two things in China – mining and trading (speculation).

bitkan-co-founders-original

Bitcoinist: Bitcoin mining giant BitMain invested $1.6 million into your platform last year. What have you done with these funds so far and what are your future plans?

LL: We spent the investment on global promotion and development. In the future, we are going to roll out our OTC business globally.

Segwit will not be the best solution for Bitcoin scaling, it will make the Bitcoin network more complicated.

Bitcoinist: Bitmain is a supporter of the Bitcoin Unlimited scaling proposal. Where do you stand on this issue in the scaling debate?

LL: We support Bitcoin scaling first and foremost, but we do not support a fork. We hope that the parties can reach some agreement. My personal opinion is that SegWit [Segregated Witness] will not be the best solution for Bitcoin scaling, it will make the Bitcoin network more complicated.

Bitcoinist: Finally, how is your planned expansion into the US market coming along?

LL: This is still in the early stages, but we are making some progress. The USD market is now the second biggest for BitKan. The US has different regulatory policies across different states, and BitKan will comply with these laws accordingly.

[Full disclosure: Bitcoinist is not owned by and is not associated with BitKan.]

Will the Bitcoin OTC and P2P trading continue to grow in China? Let us know below! 


Images courtesy of Shutterstock, BitKan, BItcoin Magazine, Coin.dance

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Lis 04

OTC: The Silent and Growing Sector in the Bitcoin Trading Markets

Source: bitcoin

Bitcoin Over the Counter Trading OTC

The bitcoin price has exploded in recent weeks, breaking $700 USD for the second time in 2016. Many analysts attribute this bullish activity to the economic slowdown occurring in China, along with the devaluation of the renminbi (RMB), which reportedly leads Chinese investors to buy bitcoin as a safe-haven asset.  

Disclaimer: This article is sponsored by BitKan

The Chinese economy has been in a slow decline since the beginning of 2016, with a depreciating currency and a stock market crash worrying investors holding Chinese assets.

Meanwhile, the economic struggles in China have sent bitcoin markets into a bullish frenzy, propelling the currency’s price skyward.

As such, a large portion of bitcoin’s purchasing volume comes from China, with both cryptocurrency enthusiasts and profit-driven investors buying in.

In fact, one bitcoin analyst credits China’s massive capital outflows for the cryptocurrency’s recent rise to $700 USD. Citing the country’s estimated $573.2 billion in capital flow during 2016, the analyst predicted that enough Chinese money would flow into bitcoin to push its price to $800.

The Rise of OTC Markets

 

Bitcoin exchanges are an area of focus when considering Chinese bitcoin trading. However, over the counter (OTC) markets off an equally large — if not bigger — source of trading from all over the world, China included.

For the most part, OTC trading has been reserved for people purchasing abnormally large amounts of bitcoin. The bitcoin community refers to these traders as “whales.”

However, one Chinese bitcoin company wants to bring OTC trading to the masses through its new mobile service.

BitKan, a popular Android and iOS application that provides news and market data for bitcoin, has recently added an OTC market as part of a large update to its product.   

Similar to popular peer-to-peer exchange LocalBitcoins, the BitKan OTC market displays traders in the user’s area and their buy and sell quotes. Users can choose the person they want to trade with, contact them through the app, and arrange a trade.

In order to utilize the OTC utility, BitKan users have to create an in-app web wallet, as well as bind their phone numbers to their app accounts in order to execute purchases via SMS.

The company has recently brought this service to web-based users as well, launching a browser version of the OTC function on its official website.

While the team at BitKan does not condone illegal asset liquidation, or other actions that violate Chinese capital controls, it still claims to respect user privacy. As such, any OTC trades on the app under 5 BTC do not require Know Your Customer Verification.

Getting off to an enthusiastic start, the company has visited bitcoin and blockchain conferences across the world, recently attending the Blockchain & Bitcoin Conference in Kiev in September. The team also said it plans to go the next conference in Moscow.

Additionally, today, the team will be at the laBITconf in Argentina, the largest bitcoin conference in Latin America. BitKan is a major sponsor of this event, and the company’s chief operations officer will deliver a speech there on the Chinese Bitcoin and blockchain market.

With services like BitKan and LocalBitcoins gaining in popularity among average traders, and a continuing threat of global recession, it is plausible that OTC bitcoin trading will continue to grow, simultaneously driving the bitcoin price higher.   

Do you use OTC markets to trade bitcoin? Let us know in the comments below.


Images courtesy of Shutterstock, BitKan.

The post OTC: The Silent and Growing Sector in the Bitcoin Trading Markets appeared first on Bitcoinist.net.

OTC: The Silent and Growing Sector in the Bitcoin Trading Markets

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