“We are starting to see a lot of smart money enter into the space,” says, Ryan Rabaglia, Head Trader for Octagon Strategy, a Commodity and Digital Asset Trading firm based in Hong Kong. “[The money] is coming moreso from institutions and it’s smart in that it often rides the frontend of the trend. We are seeing smart money in the form of smaller and medium sized institutions take much larger positions in [bitcoin].”
What’s more, the veteran Chinese-based bitcoin trader observes, the smart money seems to be staying in bitcoin.
Smart Money is Staying in Digital Assets
The demand picked up over the summer, around the time of the bitcoin halving. Ryan says the trading desk he oversees has seen an increase of 70% in business growth month-over-month for the last three to six months.
“It is a bit surprising we’ve had this type of growth persist at this level, ” the experienced trader says.
Though he has seen institutional smart money come and go, Ryan notices that – this time – the trend is persistent. “It’s been a very consistent trend over the last year,” he says. “Larger traders and position takers have entered into the market.”
By now it’s no secret wealthy Chinese investors use bitcoin to get bitcoin out of the country as the Chinese government and regulators restrict the outflow of capital and limit the purchase of insurance and real estate abroad.
As Beijing reportedly struggles to manage yuan depreciation, and the nation’s reserve to sink to new lows, smart money in China has entered into the digital asset space, which is led by the digital currency bitcoin.
Why do the Chinese Turn to Bitcoin?
China and bitcoin have seem inextricably linked since the digital currency’s release in January 2009. 90% of bitcoin trade takes place in China, and a robust network of miners, thanks to inexpensive electricity and hardware in the country of 1.35 billion, has made the nation a bitcoin epicenter.
“China is of course on the forefront in digital payments and sort of migrating over to a cashless society,” Ryan reasons. “The growth of cashless payments here is extreme.”
Seeing bitcoin as a safehaven, Feng Xin’an, 43-year-old sales manager with Shanghai-based Maoxin Trade Ltd, claimed to have invested approximately 135,000 yuan ($19,515) into the bitcoin market. “The young generation, like my son and his friends, love to pay with digital currencies,” he told China Daily.
Demand for bitcoin is largely credited with driving the price to near record highs throughout 2016.
People’s Bank of China Makes Statement on Bitcoin
Throughout last year, as China implemented capital outflow controls, demand increased for bitcoin.
The People’s Bank of China Shanghai Head Office made a statement late Friday about bitcoin, calling the volatility in the digital currency “abnormal” and advising companies operating in the country on bitcoin-related business conduct, including limitations on marketing and discussion of the yuan’s decline.
BTCC, popular bitcoin services company based in China, stated the PBOC wanted to warn of the “significant volatility in bitcoin trading, and also quoted from a notice released in 2013 saying that bitcoin is a virtual good and doesn’t have legal tender status.”
According to BTCC’s release, the mining company “regularly meets with the People’s Bank of China, and we work closely with them to ensure that we are operating in accordance with the laws and regulations in China.” Beijing-based business and finance publication, Caixin stated of the PBOC release:
“…[T]he two [Bitcoin] trading platforms in Beijing were required to comply with central bank requirements and were told that the promotion should not mention the depreciation of the yuan.”
Yuan Decline Worsens
In late November, the Wall Street Journal reported China was having troubles steadying the yuan’s decline. Goldman Sachs discovered in December the real world amount of Chinese FX outflows. Beijing, the US investment bank determined, had disguised how much capital was leaving the country.
Goldman calculated that from August 2015 to November 2016, Chinese FX outflow totaled roughly US $1.1 trillion. The overall data implies China has depleted its reserves faster than PBOC reserve data suggests.
China’s foreign currency holdings declined for the sixth straight month in December. In an attempt to stabilize the yuan, Beijing drained its reserves of $320 billion in 2016, a $41.1 billion decrease. Reserves are at a five-year low of $3.01 trillion, according to the People’s Bank of China on Saturday, just as the institution made it’s bitcoin comments.
China’s reserves have fallen for the past ten quarters from its $4 trillion record peak in June 2014. It’s economic news like this that ensure smart Chinese money enters, and stays, in bitcoin.
The Bitcoin price in Chinese yuan terms reached an all-time high of approximately 8,575 CNY before correcting. At press time, one bitcoin is worth approximately 6,498 CNY.
Will western smart money follow institutional money into bitcoin? Let us know in the comments below.
Images courtesy of Shutterstock and Bitcoin Wisdom.
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