Bitcoin’s price soared Friday by 22 percent, and speculation for the reason behind the surge has centred on various causes: fresh legal travails over at Bitfinex, short squeezes, and an announcement by Chinese President Xi Jinping on Friday that the country would be investing heavily in Bitcoin’s underlying technology, blockchain.
Let’s consider that last one: could Chinese signalling have caused the surge?
The arguments in favor range from the speculative to the silly.
On Saturday, Anthony Pompliano, co-founder of cryptocurrency index fund Morgan Creek Digital, tweeted (at President Trump, no less) that China was “planning to buy…all” of the 21 million bitcoins that will eventually be in circulation, 18 million of which have so far been minted. “This is going to be the real US - China competition,” he wrote. “That should get [Trump] to pay attention. The guy hates losing and will try to buy them all.”
Oh, boy! Better buy up all the bitcoin before Xi snaps it all up!
China's crypto conundrum
The notion that China is buying up all the Bitcoin is fairly ludicrous. Yes, much of the world's bitcoin mining is done in the country, so there is and has always been a local, vested interest. And yes, a Chinese court recently ruled that Bitcoin is private property and enjoys the same legal protection as any other asset.
And yet, at the same time, the regime has sought to crack down on those mining farms, and last year summarily banned Bitcoin trading altogether. Simultaneously it has been developing its own cryptocurrency, a stablecoin tied to the renminbi, for the better part of two years.
Bitcoin is a competitor. China will do what it has always done since the mid 20th Century: It will build its own crypto currency. Indeed it has said as much. Wake up, sheeple!
“China isn’t going to suddenly become friendly to bitcoin,” Nic Carter, a partner at Castle Island Ventures, told Decrypt. “They’ve been getting more hostile lately.”
Trading places
Of course, it’s possible that Bitcoin traders might have become excited by Xi’s announcement. The pump took place around 1pm UTC, just as traders in Asia began to awaken. And Chinese investor Dovey Wan pointed out on Twitter that searches for “blockchain” on WeChat, the immensely popular Chinese messaging app, spiked by several orders of magnitude prior to the rally. Could Xi’s sort-of vote of confidence for blockchain technology sent traders into a bullish frenzy?
“It’s probably traders reacting to it to some degree,” speculated Carter. “But the size of the move was shocking. We’d need something cataclysmic to explain a move that significant.”
Remember that Xi never explicitly mentioned Bitcoin—he mentioned only “blockchain.” His regime has long been exploring the technology as a better way to surveil its citizens, not as a way for the masses to buy Oxy, or offshore their money.
Carter reckons the pump was due to a minor fund liquidating—or newly joining the thinly traded bitcoin market—causing a brief influx of money that would have triggered the wider rally. And over on derivatives exchange BitMEX, scores of short-sellers—traders betting against bitcoin —did indeed have their positions liquidated. That means they had to scramble to cover their bets, which drove up the price of BTC.
The Crypto Capital connection
There’s also another possibility, though it, too, is propped up by mostly circumstantial evidence: Bitfinex, the large exchange at the heart of an investigation by the New York Attorney General, ran into fresh legal problems late Thursday as the president of its erstwhile payment processor, Crypto Capital, was arrested in Poland and indicted on three criminal counts by the US Attorney for the Southern District of New York.
As crypto pundit Preston Byrne pointed out in his blog, rallies often dovetail with bad news for Bitfinex: The exchange is managed by the same people as Tether, which controls issuance of the dollar-pegged stablecoin USDT, which is popular among traders and whose volume increased by half a billion as Bitcoin leapt from $7,500 to $9,500. The theory goes that Bitfinex is madly printing tethers to pump Bitcoin up, in order to finance its imminent exit. (The exchange denies this.)
But even that theory could, plausibly, lead back to China. Wealthy Chinese traders reportedly hoard tethers for their useful parity with the dollar (though they don’t necessarily trade it for Bitcoin). Maybe they were cashing out, emboldened by Xi’s proclamation and disturbed by Bitfinex’s alleged criminal connections?
Or maybe, indeed, President Xi just bought the dip.