Friday, 4 November 2016

The Sudden Drop in Bitcoin Price

One day after i published the article entitled Will Bitcoin (BTC) Price Break Out of June's Peak ?, the BTC price dropped by some 6%. This CoinDesk article has an explanation for the large drop.

What this article described was exactly the situation i depicted in my above article. I.e. Chinese is using Bitcoin to trying to move money out of the country. I suspected that and wrote it in my article because the time of Baidu advertising ban on Bitcoin is too much of a coincidence with the time where the Chinese authority was concerning about capital outflow.

This is hardly an original idea. Before, we had Bitcoin being used in the Silk Road in the Dark Web, and others use it to launder money. All these groups make use of the Bitcoin precisely because it's perceived to be decentralised and anonymous and escape the control of the government. All these activities can boost the BTC price in short term, but could harm its reputation in the long term.

Silk Road website

As i said in my above article that the overwhelmingly large Chinese BTC community is a mixed blessing. Without them, BTC is probably worth less than $10 today, and its market size wouldn't be big enough to attract all the venture capitalists to throw in money to develop the Bitcoin ecology to its respectable size today. But on the other hand, that same dominant Chinese presence in BTC market is also vulnerable to whim of Chinese government.

While the Chinese authority can't kill Bitcoin because it's decentralised, and out of the hand of any government, but they can kill its price. Again, this is one of risks of Bitcoin to be lived with by Bitcoiners.

This little incidence shows how the events in China can move BTC prices more than any geographical area.

'Chunky' Chinese man caught trying to cross border to Hong Kong with $74,000 strapped to his waist
'Chunky' Chinese man caught trying to cross border to Hong Kong with $74,000 strapped to his waist.
'Smuggle' Bitcoin out of the border is far less messy and dangerous, if he knows how (and if it's still possible).

Again, i imagine they would shut down the Chinese BTC exchanges as a very last resort. One thing they can do right now is to enure the Chinese BTC exchanges will put in measures to prevent those Chinese million of Bitcoins ever leave the Chinese border.

As i said in this article, which states that while Bitcoin itself maybe decentralised, but not its infrastructure. This means the government can control Bitcoin via the centralised infrastructure like exchanges. Bitcoin is only partially decentralised. But then, if Chinese authority can't control the Chinese Bitcoin activities, it would shut it down, and we'll see a BTC price of $50 tomorrow.

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