Without Options, Bitcoin Holders Will Always Reel at Chinese News

Jacob Harper  |

Despite a brief resurgence in early April, bitcoin’s price is once again on a downward trajectory. From April 24 to April 28 bitcoin’s value sunk from $500 down to $421, and for investors who closely follow the price of BTC the culprit should come as little surprise.

A fresh wave of rumors concerning the Chinese government’s supposed intention to more closely regulate the trade of the virtual currency set off another miniature sell-off, with investors in the West and China fearing the worst. It’s a scenario that has played out at least three times in 2014 alone, following the first major panic in Dec 2013 that saw the price of the volatile digital investment more than halved in two weeks, from a high of $1,147.25 on Dec 4 to $522.23 on Dec 18.

The Chinese government has longed maintained a “play at your own risk” stance concerning bitcoin, really only stating that they consider it a “special virtual commodity.” But the hints that their stance would harden considerably, possibly to the point of a ban without prior notice, has always kept investors on their toes.

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The latest scare that things were moving in a negative direction for bitcoin came in the form of news that the exchange BTC China had halted local currency deposits from one specific bank. The bank in question, China Merchant’s Bank, has barred its account holders from trading BTC, joining their peers in both China and the West who are fearful that if their respective governments were to freeze out bitcoin, it would happen without warning and leave traders with little recourse to recoup their losses.

In China, the West, or anywhere in between, all a BTC holder can do is hold their breath and continue to hope for the best. It’s an incredibly risky play, considering that nobody outside the upper ranks of the famously opaque Chinese financial regulatory system know for sure what  the country plans on doing. Chinese traders as well move in flocks, chasing wealth storage vehicles (be it real estate, gold or bitcoin) that serve as alternatives to China’s “extremely volatile and occasionally untrustworthy” stock market. But, as evidenced by the deflation of the Chinese property bubble in 2012-13, those investors can move out just as quickly as they moved in.

The BTC market has so far failed to develop a trustworthy hedge against sudden price drops in the form of a sophisticated options market. This has made the BTC market a “go long-only” one, leaving investors little insurance were trading in China to be halted not just by one bank, but the entire country.

By 1 PM EST BTC was trading at $441.83, up from a weekly low of $421.47 earlier that morning. Bitcoin is down 42 percent on the year.


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