Chinese Bitcoin Ban and Mining Dominance Could Be a Problem

While the world tries to figure out what China is doing in regards to Bitcoin I think there is one serious threat that is not being reflected in the Bitcoin price. While its been widely reported that China is essentially closing all Bitcoin exchanges another news source is reporting that Bitcoin “executives” are forbidden from leaving the country and makes a note that all Bitcoin businesses in China are under threat. Including miners.

So what?

Chinese dominate bitcoin mining, and therefore are the engine of the Bitcoin network. If they shut off tomorrow who is to say exactly what would happen – but the Bitcoin network would most certainly slow way down.

China dominates Bitcoin Mining

While its certainly possible for other countries to pick up what China drops, it wouldn’t happen overnight.

I really do not know how real this threat is, but its important to be aware of what may lie ahead.

More Rumors of China Banning Bitcoin Exchanges

Caixin (Chinese news source) re-upped on the news of some type of Bitcoin Exchange banning. This was after rumors late last week which we talked about here.

While its not clear just what is happening – its even murkier when you’re english speaking and reading second and third degree sources. In times like this I think its best to look at the Bitcoin market itself. In trading there is a saying that the news doesn’t matter – its the reaction to the news that matters.

Here is the Chinese Bitcoin exchange Huobi as of this morning. I’d say the Chinese traders don’t see Armageddon on the horizon.

BTC Price on Chinese Bitcoin Exchange Huobi

Remain CALM: About the China Bitcoin Exchange Ban Rumors

 

Update – it appears that we were right:

Note: this is how I understand the Chinese Bitcoin Exchange situation. Its my opinion only.

The bitcoin, ethereum and crypto markets all fell ~10% on a rumor that china was going to ban bitcoin exchanges. At this point it seems that through translation something was taken out of context. It looks like what China is looking to do is regulate bitcoin exchanges to prevent money laundering. There is a huge difference between “banning” and “regulating”.

Here is a link to the article that appears to have started the fire, as you can tell its a bit tough to understand just what they are saying:

Caixin China Bitcoin News

This reads more like the government isnt allowing exchanges between Bitconi and or Renminbi.

That was picked up by articles like the one below – saying that Exchanges were going to be shut down.

Forex Live markets misleading headline read here.

Hold tight – don’t panic until its clear whats going on.

Will the China ICO Ban Hurt Bitfinex

Its now widely known that China banned ICOs and even asked that ICO’s give money back to investors.

Where this could bring major problems is to exchanges and other entities that use Tether for funding. Tether, as I understand it, could be swept up in the ICO ban and could well be affected by this and China is a huge trading market.

Currently cryptos on Bitfinex like Bitcoin, Ethereum and Litecoin are all trading at a significant discount to US exchanges. Here is a shot between kraken at top and bitfinex on bottom, you can see a ~$200 price difference:

Kraken Bitfinex Bitcoin
Large Price Difference between Kraken and Bitfinex on ICO ban China

It should be noted that OKCoin is down around $4,080 at this time – so its possible that its just asian exchanges being hit harder by the ICO ban.

It will be interesting to see what the shakeout from this China ICO ban is over the next few days. I have a feeling there will be some casualties.

Bloomberg Coinbase Hit Piece – Sell Bitcoins No Payout

This article from Bloomberg talks about a “surge in customer complaints”…up to 293 about Coinbase. The article proceeds to use terms like “scam” and says that people who sold Bitcoin aren’t getting their money in the time frame quoted by the company.

Yes, they do mention that Coinbase is getting a lot of new users – but they don’t define just how many. Its MILLIONS of new users. 

I’m not suggesting that Coinbase has great customer support, or that they aren’t without problems. But linking them to “scams” is ridiculous. Step back for a second and think about this:

293 formal complaints against MILLIONS of new users, hard forks, record volumes.

That ain’t bad. Inconvenient even aggravating for users who need their money? Yes. Scam, no.

Public Service Notification: Bitfinex

First I’d like to say I have no idea if any of the below is either:

A) True

B) If it is true – that it results in Bitfinex blowing up.

This is a notification that if you use Bitfinex you should be doing some homework.

The general outline is that Wells Fargo cut off Bitfiniex – and Bitfinex started to leverage Tether for their funding. Tether is a currency their sister company started. Since April there has been a 400% increase in the amount of Tether. A second site offers that this Tether can be used for margin trading and this could be influencing the price of Bitcoin.

Read in depth research here:

I’d note that Mt. Gox made some errors and attempted to inflate the price of Bitcoin to get out of their trouble.

There were also some other strange happenings with Bitcoin Cash. After the fork Bitfinex changed their distribution method i.e. they went back on their word.

They also recently announced to stop adding US Customers.

Again – I am not saying to panic. But I am saying do some research.

Another Bitcoin ETF Proposed

Van Eck, a large ETF provider announced they are seeking approval to launch their own Bitcoin ETF. Instead of actually holding Bitcoin they are going to leverage the Bitcoin Derivatives market to track the price of Bitcoin. This is quite smart and I think has a better chance at approval before the Winklevoss Gemini ETF.

The CFTC approved a Bitcoin Derivatives exchange “LegderX” several weeks back. Because Van Ecks ETF will rely on that rather than Bitcoin it means that clearing and moving funds will arguably be more transparent and secure because the derivatives settle in cash. The SEC and CFTC understand cash better than they do Bitcoin.

I personally thing the challenge the SEC has with the Winklevoss ETF is that they cannot wrap their heads around how the storage of Bitcoin will take place and where the funds will held. There are lots of security issues here which needs to be addressed and that makes for a lot of challenges.

There is “GBTC” which is not actively managed and usually trades at a very high premium to Bitcoin – see here.

Bitcoin Bullish: CBOE Signs with Gemini for Price Feeds

The CBOE is now launching Bitcoin Futures in a plan with the Gemini exchange. I am not certain what the implications are of this for the Bitcoin ETF that the Winkelvoss were working on. Launching Futures is a much easier task for the CFTC and/or SEC to wrap their heads around as the Future just has to track the Bitcoin price. Whereas with ETF the SEC has to figure out how actual trading and settlement of the Bitcoins underlying the ETF would work.

One could argue that the Bitcoin ETF would have had a much bigger impact on price that the Future. But inevitably there will be players in the market which are arbitraging Futures versus the underlying. This means more capital flowing into the cryptocurrency space. It also means more legitimacy for Bitcoin wherein regulators and stock exchanges are grasping and embracing the products.

More thoughts on that here.

S&P500 and Ethereum Moving Together?

Yesterday we mentioned some interesting moves that seemed in sync from the US stock market and Bitcoin/Ethereum.Today was another curious move.

The chart below shows a good move up in the S&P500 (an Index of the US stock market) and Ethereum. Both moves occured right in the 10:11-10:12AM EST time frame. The top chart is Ethereum from GDAX and the bottom is the S&P500 (SPX).

Clearly there are good sized traders out treating Ethereum and Bitcoin as an asset class like equities…

Ethereum vs US Stock Market
The S&P500 Moved up in sync with Ethereum