China's bitcoin traders who use the most popular bitcoin exchange not only in China, but also the entire world, BTCChina, were met with an unexpected warning on Friday:
Starting from January 12th, 2017, BTCChina has suspended margin loan service. If you have any questions, please contact Customer Service: firstname.lastname@example.org.
BTCChina, which commands over 37% of global bitcoin trading...
... wasn't alone.
Following last week's central bank crackdown on bitcoin, China's major bitcoin exchanges have all halted, or otherwise updated, their lending-based bitcoin trading services, according to CoinDesk.
First reported by China-based bitcoin traders and market observers, BTCC, Huobi and OKCoin appear to have quietly adjusted their terms. Just around the time of the BTCChina notice, Huobi issued a similar announcement on its WeChat page, advising clients that "in order to maintain market stability, we may pause the new leverage services at any time according to market fluctuations and our risk control systems."
Meanwhile, OKCoin's international and China-facing websites OKCoin.com and OKCoin.cn were said to be offering limited or augmented versions of the services, though traders were reporting different experiences.
While some users told CoinDesk they were able to borrow 2x leverage at press time (even when executing CNY-denominated trades on OKCoin.cn), others indicated that their accounts were prohibiting this action.
One trader said he was able to see higher margin options, but only able to borrow lower amounts. (OKCoin representatives did not respond to requests for further clarity).
Bobby Lee, CEO of BTCC, told CoinDesk that changes to the exchange's service were being made in response to interactions with the People's Bank of China, the country’s central bank, though he stopped short of saying that the service had been terminated or disabled. Lee told CoinDesk: "There's going to be some give and take. We'll likely make adjustments as time goes on."
Lee indicated that the move came after the exchange received "informal guidance" from the PBoC, which as reproted last week, has been engaged with domestic bitcoin exchanges amid the run-up in bitcoin prices seen at the start of the year. The developments followed news that central bank officials had met with representatives from the exchanges and, warning them it would "rectify misbehavior" by exchnages.
Last week news spread quickly about the central bank intervention in bitcoin on Chinese social media, with seven local industry representatives acknowledging they were aware of the supposed changes (some noted that they had yet to actively test their perceptions via exchange accounts). Some local traders indicated that they were not surprised by the news that margin trading services had been updated, given the longstanding lack of legal clarity under which the exchanges had operated.
One former representative of a China-based exchange, who declined to be quoted on the record, indicated that he is unsure of whether the issue would have been with the service itself or the way it was marketed to consumers. "I don't know if it's [paused] while they implement a system that's agreeable to the government, or if it's gone for good," he said.
OTC trader Zhao Dong, likewise, hinted at how this development could come to shape the bitcoin markets, portraying it as a double-edged sword for the industry.
"The good side of margin trading is it provided additional liquidity to the market, the bad side is it is easy for investors to lose money," he said.
Ultimately, the crackdown on margin lending may end up being a long-term positive, as it will prevent the tremendous momentum shifts that have sent volatility in the digital currency soaring. While it would mean slower gains, it would also result in far more gradual selloffs, and a strong investor base.
Yet from some quarters of the Chinese bitcoin space, there was a broad feeling that further engagement with regulators will be forthcoming. Cited by Coindesk, Ricardo Zhang, CEO for BTC123, a local bitcoin lending and news site that yesterday paused its services: "I think this time, there will be some corresponding laws and regulations promulgated, and a more standardized industry."
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For some Chinese traders the crackdown on margin lending comes just a few days too late. On Friday night we observed the plight of of Ding Wen, who by the age of 34 had built up a personal fortune of more than two million yuan after years of hard work at an internet company in Nanjing, in east China’s Jiangsu province. But, Wen saw most of that wealth go up in smoke on January 5, when China’s bitcoin market crashed, sending the price of the virtual currency plunging 40 per cent in just a few hours after lunch. The reason? Trading on margin:
Ahead of the market crash, Ding had borrowed 995 million yuan from Huobi by pledging a principal consisting of the 409 bitcoins he already owned. He then bought a further 1,228 bitcoins with the loan. Most of his holdings were compulsorily sold out by Huobi during the price collapse while he was unable to access his account.
Meanwhile, Wu Xing, head of marketing at Huobi, said the log-in delay was caused by a torrent of visits and selling orders, which exceeded the capacity of the website. “[The loss] was due to irresistible factors and not included in the compensation scope. We are sorry and understand the feelings of the investors,” she said.
While China's infatuation with the rapidly moving bitcoin will come and go, then come and go again, this incident merely reinforces a long-running observation of ours: for those traders seeking a way to get rich quick and retire, forget fundamentals, forget technical analysis, forget even reading between the lines of central bankers or frontrunning Donald Trump's tweet: all you have to do is figure out which asset China's army of deranged bubble chasers will flock to next, buy it just ahead of time, wait a few days, then sell it all just before the bubble bursts.
For the really brave ones, rinse and repeat.