DISCLOSURE: I'm a retired financial analyst and I have a lot of experience on doing qualitative analysis (I know this doesn’t mean anything when dealing with Bitcoins). I've been long on Bitcoin since February of this year and I am a true believer as to the massive economic and social impact that Bitcoin will have upon the world in the future. With that being said, I do believe in protecting my gains, especially when I believe the #1 exchange (BTC China) in terms of volume is probably going to be shut down after January 31, 2014.
VOLUME: From August 22nd through December 19th (120 days), 3.9 million Bitcoins, 15.1 billion Yuan (approximately $2.29 billion) were traded on BTC-China. For the same period, 3.2 million Bitcoins ($1.4 billion) were traded on Mt. Gox (U.S. currency only) and 2.7 million Bitcoins ($1.2 billion) were traded on BitStamp (U.S. currency only). At a Stanford Seminar, Bobby C. Lee disclosed the result of a survey that BTC China conducted to their Chinese costumers only. While disclosing that it was not accurate (a few receive an iPad for participating), the results were very interesting. Over 90% of their customers who participated in the survey held at least a university degree compared to the national average of 27%. Next they asked why they are buying Bitcoin. Five percent to purchase goods, 19% for novelty, 34% for short-term speculation and 41% for long-term investment. Assuming that the survey was a somewhat accurate representation of Chinese users, approximately 1.6 million (3.9 million X 41%) Bitcoins were purchased for long-term investment. This 1.6 million Bitcoins that were purchased and held for the long term is a very conservative estimate considering that: a) it doesn't even count the number of Bitcoins that were mined in China; b) it is only 13% of the total number of Bitcoins in circulation (12.1 million) allocated to the 2nd largest market of Bitcoins.
BTC China: On December 5th the government of China banned financial institutions from having direct dealings with Bitcoins. I thought that the global market over reacted to a positive directive (regulation = legitimacy). Bitcoin's price dropped 43.7% from $1,237 at the opening of the trading day to the closing price of $696 on December 7th. Then it went up 48.35% to $1,034 by the close on December 10th. On December 16th, the Chinese government, using their agent, People's Bank of China (PBOC), convened a meeting with third party channels demanding the end to custodian and trading services. With this news the price of Bitcoin dropped by 41.2% from $920 at the opening of the trading day to the closing price of $541 on December 18th. Speaking for myself, I didn't realize the importance of the December 16th meeting until December 18th when BTC China announced through their website that, as of now, it would not be able to accept new deposits into the exchange. Equally important, you won't be able to get your money (Yuan) off the exchange AFTER January 31, 2014. While Bobby C. Lee, CEO of BTC China, is not giving up yet, I personally think that the exchange is finished. I made the mistake of not seeing the writing on the wall on December 16th, partially because I'm ignorant of Chinese culture and partially because I wanted to believe that such an important market for Bitcoin's past and future growth could not end. My research on the internet has led me to conclude that the Chinese government has thought about the implications of the use of Bitcoins to evade their capital controls and has ended the Bitcoin experiment in China .
Mt. Gox order book depth currently has 108,000 Bitcoins to purchase before it hits the $100 mark. BTC China’s order book depth is only 20,000 Bitcoins until it goes to zero. That’s not much considering the average daily volume was 58,000 on BTC China for November. From December 18th to December 26th, 227k, 172k and 332k Bitcoins were traded on BTC China, Mt. Gox and BitStamp, respectively. Obviously not every trade was from Chinese investors trying to dispose of their positions, so the amount of Bitcoins that need to be divested is still quite large. So I’m going to guess that 100K Bitcoins have been divested by Chinese investors so far which leave at least 1.5 million Bitcoins outstanding.
SCENARIOS: So far, I can only think of only 3 options that the Chinese have: a) hold them for the long-term and eventually trade them in gray markets (investment if Bitcoins are not yet illegal in China); b) sell them in foreign exchanges for a premium; or, c) wait and see (if the Chinese government is really against Bitcoin or if BTC China is able to get a third party vendor to reinstate deposits and withdraws). If I missed any other viable scenario, please post it. No one option is what they are all going to do in the upcoming month, but I want to get a felling for what the majority of Chinese Bitcoin investors are thinking.
We know that a considerate amount of Chinese Bitcoin investors are male, under 40, and very well educated.
I need insight if they believe in Bitcoins enough to keep them for the long-term and possibly go against the wishes of their government. If most Chinese investors believe in the very profitable future of Bitcoins, then, I believe, the effect on the price of Bitcoin will not suffer too much by January 31st.
I’m of the opinion that not too many Bitcoins have been sold in foreign exchanges (yet), but I have to believe that a +20% gain if sold on Mt. Gox instead on BTC China (like the price difference was of December 19th) will attract some Chinese investors. About 8% difference in price between the two exchanges during the last 3 days is not enough to warrant an exchange between countries. I want to get some insight if these Chinese investors would travel to Japan or Europe to get their earnings and how hard it would be for them to exchange the U.S. Dollar or Euro for Yuan. I don’t know what alternatives Hong Kong would provide, so if you have an idea, please provide.
I’m nervous that Chinese Bitcoin investors have a wait and see approach. Any news, either coming from the Chinese government, BTC China or Huobi, I believe, will cause significant change to the price. I’m concerned that Huobi, the current lead exchange in the world in terms of volume, is defying the Chinese government. I want to know if my concerned is warranted and what the Chinese government will do about it. If the Chinese government raids the offices of Huobi, like India’s Enforcement Directoratendia has done with buysellbit.co.in, there would be a huge crash on Bitcoins price. On the other hand, Chinese Bitcoin investors have more than a month to divest their Bitcoins. I believe the international Bitcoin market could buy the 1 million Bitcoins (500,000 stay in China for the long-term) without hurting Bitcoin’s price due to the immense attention that Bitcoin has been getting the last 2 months.
QUESTION: Obviously the number 1 question is what Chinese investors are going to do with their Bitcoins. I'm asking the Bitcoin community for their intelligent input. What I really want are replies from people who have experience of living in China, know their culture or better yet, know people in China who are or were invested in Bitcoins. If someone can translate the Chinese forums to see what they are thinking that would be great too.
I don't want your emotional charged opinions to sell or buy, what the price you think it will be in a month, accusations of being a bear, etc. For the most part, we are all long on Bitcoin and know that its meme is the honey badger for a reason. China will not be the end of Bitcoin, but possibly a huge bump on the road. Please don’t respond to brainless replies, it gets us off the point. The point is to listen so we can make an educated assessment of what Bitcoin’s price is going to do in January.