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Bitcoin Trading on Margin Halted by Major Chinese Exchanges
The high leverage offered by Chinese Bitcoin exchanges likely attracted the attention of regulators investigating the market.
The possible ramifications of the recently revealed investigation by the Chinese central bank of bitcoin exchanges are starting to come to light after BTCC, Huobi and OKCoin suddenly stopped offering leveraged trading on margin. Luckily for long term traders and investors this time the news didn’t hurt the price so far, with the BTC/USD exchange rate staying around the $800 level.
Talking to us shortly before this publication, Bobby Lee, the CEO of BTCC, told Finance Magnates that the importance of this move needs to be taken in context and not be overstated. He explained that halting leveraged trading could just be a temporary action, one of possibly many more tweaks to the service to come, as the exchanges are trying to adapt to the demands of the regulators while nothing official has been decided yet. The real importance here, as he sees it, is that the PBOC is actively engaging with BTCC and other bitcoin exchanges and openly shares this with the Chinese public.
As is commonly accepted in other markets, high leveraged trading can cause volatility to greatly increase with sharp price movements fueled by easy credit rocking the market. As such, this move can actually help the bitcoin market settle down, mature and attract less negative attention for the roller-coaster price changes.
And there is another benefit of the halt of leveraged trading at the Chinese exchanges. We might finally find out if there is truth in the claim that they only report such high trading volumes, far higher than the rest of the world combined, because they offer leveraged trading.
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BTC/USD: Bitcoin Prices Stabilize Amid China Regulatory Uncertainty
Bitcoin prices stabilized over the weekend, although concerns over China’s yuan policy kept demand on the mainland subdued compared to recent months.
The BTC/USD exchange rate edged up 0.5% to $830.61 at 1:39 pm on the Bitcoin Price Index (BPI). Prices traded within a $20 band, hitting a session high of $839.29 and establishing a low of $819.14.
Prices sunk to more than one-month lows earlier this week, an extension of selloff that began on January 5 following a decision by Chinese regulators to lower the yuan’s reference rate. As a result, the offshore value of the yuan surged at its fastest pace against the dollar in a year.
Beijing’s guidance of the yuan triggered bitcoin’s biggest flash crash in two years, highlighting the increasingly divergent relationship between the pair. For mainland investors, bitcoin is a virtual hedge against yuan instability, and has been used to diversify away from traditional Chinese assets.
Virtual outflows present another headache for the People’s Bank of China (PBOC), which is trying to tighten capital controls at a time of greater economic instability. The PBOC has been highly critical of bitcoin, having issued an official warning on dealing in the virtual currency back in 2013. However, policymakers stopped short of banning it outright, and have largely remained on the sidelines of the bitcoin debate over the past three years.
Bitcoin price action has been highly volatile since the start of the year, but has established tighter ranges for most of the week. Amid the fluctuations, the BTC/USD hit a low of $752.11 on January 11. Since the selloff began, prices rose as much as $942.06 on January 8, according to CoinDesk.
Report: Blockchain Technology Market to Reach $7.7 Billion by 2024
The worldwide blockchain technology market is forecast to reach $7.74 billion by 2024, with the financial services sector accounting for the majority of the future market growth, predicts a new report .
"Blockchain technology is one of the most promising upcoming technological trends in the information technology domain," according to Grand View Research, a San Francisco-based market research and forecasting company which authored the report.
The report predicts continued growth in the U.S. and Canadian markets (40.9 percent of the market). Meanwhile, China and India will see a compound aggregate growth rate of 37.6 percent in the next eight years as the growing financial sector adopts blockchain technology.
"Not only does the technology hold the ability to disrupt the way the financial sector often works but it will also have ramifications on many other industries including consumer goods, technology, and media and telecom, among others," reads the report.
Major Blockchain Market Players
The report describes a number of successful ventures including the Microsoft and Deloitte collaboration with R3.
"A wide range of players in the finance market are looking out for investment opportunities and many have made the first phase of investments to develop products and services in the industry," it notes. "Though the market may be struggling with regulatory uncertainties and security concerns, the coming years are expected to witness a larger role of the concerned technology in financial transactions, spanning diverse domains and industries."
It also gives the nod to other major companies that are currently active market players in the blockchain industry, including IBM, the Linux Foundation, Chain Inc., Circle Internet Financial and Ripple, among others.
Public Sector Dominance
The report predicts that the public sector will dominate the future blockchain market because of what it sees as "the growing tendency of the government and institutions to inculcate open and efficient transactions. For example, the Australian Securities Exchange announced that the exchange had intentions to move Australia's settlement and clearing systems on the blockchain platform."
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BTC/USD: Bitcoin Prices Rally Above $900 Amid Limited PBOC Intervention
Bitcoin mounted a large comeback this week, as the flight to haven assets resumed on optimism China’s central bank would refrain from placing additional restrictions of crytocurrency trading.
The BTC/USD exchange rate surged 3.2% to $919.88 at 1:39 pm ET, according to CoinDesk BPI. The world’s most actively traded cryptocurrency reached a session high of $927.24 on Saturday, and was on pace for its strongest settlement in two weeks.
Several rallies throughout the week briefly pushed bitcoin prices above $900, including a more than 9% gain on Tuesday. The crytocurrency is consolidating after its biggest flash crash in more than two years.
Bitcoin exchanges in mainland China, where the large majority of transaction volumes take place, suggest bullish sentiment has returned to the market following a period of regulatory uncertainty. After launching an investigation into major bitcoin exchanges, the People’s Bank of China (PBOC) has banned leveraged crytocurrency trading in an attempt to stem volatility and restrict virtual outflows. According to experts, there is a perception among investors the PBOC will take no further action at this time.
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China's bitcoin exchanges, eyed by regulators, slap on trading fees
China's three largest bitcoin exchanges, whose activities have drawn increased scrutiny from the central bank, said they will begin charging trading fees effective Tuesday.
BTCC, Huobi and OkCoin said in separate statements on their websites late on Sunday that they will charge traders a flat fee of 0.2 percent per transaction.
Each of the statements said assessing fees will "further curb market manipulation and extreme volatility".
The absence of trading fees has encouraged volumes and boosted demand at Chinese bitcoin exchanges. The New York Times, citing data by blockchain analysis firm Chainalysis, reported in late June that 42 percent of all bitcoin transactions took place on Chinese exchanges in the first half of the year.
Chinese Bitcoin Trading Volumes Crash 90% Overnight
As we reported yesterday, there was one reason why bitcoin quickly became the darling of HFT and various high speed algo traders operating out of China - which is home to about 10 significant bitcoin venues, with a majority of trades executed on the top three, and which recently accounted for as much as 98% of global bitcoin trading: domestic transactions were "frictionless", as there were no fees on buys or sells. However, that changed on Sunday night because as China's three largest bitcoin exchanges, BTCC, Huobi and OkCoin, all said in separate statements on their websites, starting Tuesday they will charge traders a flat fee of 0.2% per transaction. The move was meant to "further curb market manipulation and extreme volatility."
As expected, the impact was immediate and on the day the new fees went into effect, trading volumes crashed by roughly 90% across most Chinese exchanges.
According to Bloomberg, the same high-speed traders who had dominated bitcoin trading in China for the past year, are pulling out of China’s bitcoin market after the three biggest venues started charging transaction fees on Tuesday. One-hour volume at OkCoin fell 89% to 1,026 bitcoins at 1 p.m. local time, from 10,062 during the same period on Monday, according to the venue’s website. Huobi and BTC China saw declines of 92% and 82% respectively.
According to data from Bitcoinity there were roughly 4,800 trades on OKCoin between the hours of 11pm and midnight EST. In the following hour, the exchange registered just over 1,000 trades, denominated in CNY: a comparable fall of more than 80%.
Data pulled from Bitcoinity for BTCChina also demonstrates the apparent effect the new trading fees have had on volume. After registering more than 37,000 trades between the hours of 7 and 8pm EST, that amount had fallen to less than 1,000 between the hours of midnight and 1am EST
As discussed previously, and as Bloomberg noted, the lack of fees was seen as the main reason why as much as 80 percent of bitcoin trading in China was automated, with professionals using strategies such as "cross-exchange arbitrage" also known as frontrunning of major order blocks. The platforms made money by charging clients to withdraw bitcoin, but Tuesday’s changes may have ended that system for good. The moves came after the Chinese central bank made on-site inspections of the exchanges and reportedly found a number of violations.
“The exchanges are cutting their arms off to stay alive,” said Zhou Shuoji, whose Fintech Blockchain Group runs a bitcoin hedge fund and venture capital fund. The venues are proactively weeding out speculative trading to appease regulators, said Zhou. The fees, introduced by all three venues at midday on Tuesday, made market-making unprofitable, he said.
And while HFT traders, frontrunners and other "liquidity providing market makers" are furious that their business model in China was just crushed, the good news is that much of the inherent volatility in bitcoin may now be gone.
The good news is that bitcoin prices today were little changed, at around 6,300 yuan per bitcoin. Ultimately, any stability in bitcoin prices as a result of the elimination of HFT-driven volatility may be just what the digital currency needs to rise above $1000 and stay there.
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Japanese Giant GMO Enters Cryptocurrency Exchange and Trading Business
The increased utilization of cryptocurrencies like Bitcoin and Ethereum lead to the conglomerate's launch of GMO Wallet.
GMO Internet, Inc. (TSE: 9449) revealed today that it has decided to participate in the cryptocurrency exchange and trading business and established GMO Wallet Co. Ltd. on October 11, 2016. Headquartered in Tokyo, the conglomerate is one of the biggest players in Japan’s IT infrastructure, e-commerce, and payment processing businesses and also operates a giant online financial trading subsidiary, GMO Click Securities Co. Ltd.
Explaining the background to this decision, GMO details how in recent years cryptocurrencies, including Bitcoin and Ethereum, are increasingly utilized in a variety of transactions such as international remittance and settlements. It also notes that the Japanese government is currently revising how to change the regulation in the field. Specifically, that the Ministry of Finance and the Financial Services Agency are considering the elimination of the consumption tax on cryptocurrency transactions by the spring of 2017, and if this is happens, the further spread of cryptocurrency in Japan is expected.
The group says that GMO Wallet will provide a safe and secure trading environment by making full use of the know-how that it has cultivated in the internet securities business and IT security business, and will also promote collaboration with group companies and offer reasonable and convenient services. GMO is also preparing to open an internet bank as a new venture in the financial domain which might eventually be connected to this new service.
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