As many other people said, anyone who thought Bitcoin would be allowed in China in the first place was kidding themselves. But this post isn't to bash anyone, rather it is an explanation of where BTC value is going based on my educated guess. Firstly, to understand, China is one of the most restrictive countries in the world. It is governed under a dictatorship, the government is not elected. In China, facebook, google+, youtube, are all banned. The Chinese Government purposely devalues their currency to stay competitive in export. Devaluing currency has a positive effect on export for China, but makes import into the country extremely expensive, in which case for the Chinese, buying a laptop/clothes/shoes/anything can be very costly compared to here in the US (which many westerners may be surprised to hear). Bitcoin allows a way around that; however, since it can circumvent government control, it is a huge threat to the Chinese economy in the government's view. Given the restrictiveness of the Chinese government, of course they will not allow a cryptocurrency that has the potential to circumvent government control. If Bitcoin became mainstream in China, it would erode the ability of the government to devalue their currency and stay competitive in export.
Why the bubble and why bitcoin will be lower than what it was before China entered the game?
China significantly dominated the bitcoin market in trading volume vs other currencies, including USD. Moreover, a significant amount of bitcoins were mined in China. In fact, in China one of the world's largest bitcoin miners was created. The Chinese created server farm after server farm minting new coins 24/7 with each new block released (1 block released every 10 minutes, 25 coins per block). Even so, with so many people in China buying into BTC in such a short period of time, supply did not keep up with demand, and the value of BTC sky rocketed. Although China had a huge mining group, taking significant amount of coin with each block released, most were not selling but rather holding, and again, demand even with the Chinese miners could not keep up - hence huge spike in BTC value. If all of these new entrants were to sell at once, it would quickly run the value back down - which is what happened next.
Now, the reason you see the market going down is obvious to many. The Chinese government has not yet flat out banned Bitcoins but they have essentially made it clear that they are going to make it nearly impossible for anyone in China to buy/sell coins. The reason they haven't flat out banned it may be due to worry about political fall out. Nonetheless, as stated earlier, the country is governed by an extremely controlling dictatorship and takes significant amount of steps to control the economy. As a result, all BTC users in China are now essentially selling their coins while they still can.
To get an idea of where BTC is now heading, rewind the clock several months before China entered. All those in China who bought BTC are now selling, so with them on their way out you might think that would bring us back to just prior to their entry. I believe that there is the potential for the value to drop even lower for the following reasons. Firstly, the Chinese had more coin trade volume than any other country in the world; when they all sell at once, it hits the BTC market hard and significantly devalues the currency, thus why you saw the drop off - there is suddenly an over supply of coins and significantly reduced demand. Secondly, although not as significant, additional value will be lost due to all the new minted coins mined by Chinese pools now being sold, there are now more coins and less buyers available, so we have a surplus in coins without buyers when just days ago there was a significantly larger buying pool based in China that has now nearly disappeared completely. Although there is a set limit of 25 coins minted every 10 minutes, at the same time, it is safe to say China took a lot of these coins with their server farms are are now selling them back. Thirdly, given the high value of the coin just weeks ago, many other people who either mined or bought coins when it was cheaper will be taking this opportunity to cash out now that they see the market is diving. This could be due to the holiday season coming up and using the money, it could be people buying low and selling high, it could simply be miners ready to cash out, but anyone who wanted to make money that had coins from when their value was cheaper is likely selling - at least in some degree, while the value is still high. Evidence of this again is in trade volume and sell orders occurring at the time of this post.
Now people are pointing fingers at pump and dump players, and yes they have some responsibility for destroying this reddit community, but ultimately, who is to blame for this? First understand that China is not a free country, however, the people desperately crave to rid themselves from the oppression and control of their government. Bitcoin was a jewel in front of them, it was all the gold in the cave of Alladin's lamp just before the cave comes crumbling down. In other words, it was a glimmering hope that there might be a way around government control of their money. It offered a way for them to circumvent a truly unfair system of economic governance. In the US, you are upset if your taxes are too high, but imagine if your currency is purposely devalued and instead of paying $30 for a shirt while being paid pennies, instead it cost several times more. The Chinese saw BTC as a glimmer of hope and jumped on board; few considered the consequences. Everyone saw the value rise and no one thought why? For a month and a half people forgot how oppressive the Chinese dictatorship was, but the dictators didn't. If you think BTC will last in any country, look at how controlling the government is in the economic sector, this will show you the realities of where BTC will and will not be allowed.
Please note the above is my assumption. Please do not make financial decisions based on this. Before you make any financial decisions, it is always best to do your own research first.
Submitted December 18, 2013 at 10:18AM by AghaChris
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