This week on Planet Bitcoin - 7 January 2016

Friday 08 January 2016

TL;DR: Well, look at that. China, is that you again?

I'm travelling on Friday, so the week's market report comes a little early. Having failed to maintain its upward trend, the bitcoin market slumped back to the low $400s in the closing days of 2015. At that point, the question was whether that level would be the new normal - at least, for a while - or whether even that was unsustainable over the short term and we’d see the $300s again. Such a strong rise in the last two or three months has led many traders to anticipate such a fall, but it didn’t happen.

Chart

Instead, we saw a week of relative stability, with prices oscillating around the $430 mark. On the 7th, that pattern was decisively broken with a strong upward movement, touching $455 at one point and settling only a shade lower. Much of the rise occurred in a single hour with a high-volume spike. And there are no prizes for guessing the culprit.

China catches cold...

It can hardly be a coincidence that the 5% rise happened at the same time that the Chinese stock market crashed 7%, the maximum possible in one day. The new ‘circuit breaker’ rule meant that the crash ended trading after just half an hour. It’s a measure intended to calm the markets and reduce volatility - a real problem for China, especially, where the majority of traders are amateur investors rather than institutional ones. Panic buying and selling can play havoc with the markets, though critics argue that the circuit breaker rule just leads to more panic selling when trading reopens the next day. Given that it is the second time this week it has happened, there’s some evidence for that.

Chinese economic data isn’t looking too good, and China took the step of devaluing its currency once again to make its exports more competitive. The 0.51% downward revaluation of the renminbi (the largest since last August) caused confusion, with reports suggesting that the government had not made its intentions clear - hence the immediate effect on the stock markets. So it’s no surprise that some investors might seek to circumvent the country’s capital controls and move money somewhere safer using bitcoin. Others may be taking a straightforward gamble, since the stock market once again looks like a poor bet.

Nowadays, when China sneezes, the rest of the world catches a cold. Stock markets fell around the globe after the losses on Thursday. Along with rising tensions in the middle east and the prospect of interest rate rises in the US and UK, there’s plenty of uncertainty around. Bitcoin isn’t necessarily the answer to that, but its status as a store of value and means of moving money outside the mainstream financial system means that more and more people will likely be taking notice.


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