First Mover: What China Crackdown Means For $ 18K Bitcoin As Dimon Switches To ‘Tea’

Bitcoin remained flat to slightly lower after briefly rising above $ 18,000 on Wednesday for the first time since December 2017.

“There is a tsunami of purchasing power against reluctant sellers,” Charlie Morris, CEO of cryptocurrency fund manager ByteTree, wrote in a note to clients. “These buyers are putting real money behind bitcoin, not the old sketches and grays normally seen by retail investors.”

In traditional markets, European equities fell and US stock futures indicated a lower opening amid concerns over new coronavirus-related restrictions and freezes. Gold weakened 0.5% to $ 1,863 an ounce.

Bitcoin’s breathtaking rally over the past couple of months has been attributed to all kinds of big macroeconomic reasons, from the need for a safe haven as the pandemic once again devastates the global economy to marvelous projections about the future role of cryptocurrency in finance.

What if the recent run-up was just the result of miners in China having a hard time finding a place to sell their inventory for the kind of cash they need to pay their bills? In other words, fewer new bitcoins could hit the market and that’s what drives prices up. This is an explanation explored in Omkar Godbole’s article on CoinDesk on Wednesday.

According to a recent note from QCP Capital on its Telegram channel, miners in China are seeing their bank accounts and credit cards frozen as the government tries to crack down on money laundering. This is a big deal for bitcoin because 70% of its mining power comes from China.

In the process, the government squeeze is also affecting many cryptocurrency exchanges that cater to Chinese customers, most notably OKEx and Huobi; some questions have been raised about what happened to a couple of executives at those companies, as reported last week by CoinDesk’s Muyao Shen. OKEx suspended the withdrawals on October 16, when it was rumored that founder Mingxing “Star” Xu had been taken into police custody. He announced Thursday that he will “resume retreats” by November 27, as Xu is said to be a free man again.

Over the summer, OTC traders in China also felt the heat and had a hard time accessing cash as well.

Despite all the talk about how bitcoin is the future staring us straight in the face without distancing or social masks, utility companies, owners and maintenance workers still have to be paid in fiat. Their accounts are denominated not in satoshis but in yuan. Therefore, there is always a need for miners to trade in local currency and get on with whatever they do in their lives because many utility providers in China don’t exactly accept tether. According to QCP Capital, a survey conducted by Colin Wu showed that 74% of miners say they have trouble selling their inventory to cover operating expenses.

To be sure, Wu’s survey may not have been conducted to the strictest standards. And the calendar still insists that this year is 2020. If there is one thing that this year has taught the world it is that polls should be taken with great caution. However, it is a data point.

Bitcoin’s earnings since the beginning of October have been nothing short of phenomenal. Its price has risen about 65% since the beginning of last month. In recent weeks, some of the largest Chinese exchanges have started to see frozen accounts and executives suddenly, er, out of the office at the moment.

Meanwhile, bitcoin volume was good, with $ 1.6 billion trading on some major exchanges on Wednesday, as reported by CoinDesk’s Daniel Cawrey. Open interest in bitcoin options has soared to a record high of over $ 4 billion, double what it was in mid-October. Furthermore, positions in the options market are as bullish as they have ever been.

Around 900 bitcoins are mined every day. At current prices, it’s only worth $ 16 million. However, in one month it amounts to nearly $ 500 million and the lion’s share comes from China.

This is an interesting case where the supply curve could be shifting inward just as the demand curve is shifting outward. One of these would raise prices, all things being equal. And while we can now witness both, it is good to remember that a sudden return to the previous condition for one of these curves could cause prices to fall as fast as it raised them.