BITCOIN WATCH: THE GAMEMAKERS WAIT

In 2014 hundreds of millions of dollars in new venture capital were invested in bitcoin-related ventures. The two focal points for these investments were China and the United States. While more money was probably invested in the US, developments in China were the most obvious. The funds went both into software infrastructure and market liquidity, and as a result, between January 2014 and January 2015 the landscape has changed to the point of becoming virtually unrecognizable.
Whereas one year ago there was only one liquid futures market (796.com), today two of the top 3 Chinese exchanges – Huobi and OKCoin – have developed futures markets. Beijing-based OKCoin dominates the market, with futures trading volumes ranging from $100 to $200 million US dollars per day. One year ago, it was very difficult to use margin to engage in leveraged speculation on Bitcoin price moves; today, though functionality is still far from perfect, up to 20:1 margin is available.
Unsurprisingly, trading is overwhelmingly dominated by Chinese exchanges, since they can not only draw on the world’s largest economy, but also benefit from a virtually regulation-free environment. China has no capital gains taxes, so Chinese residents are free to trade to their hearts’ content without worrying about any need to report profits or losses, and exchanges have no need to report back to Big Brother on their clients’ activities. Volumes have expanded rapidly, with reported volume on bitcoin futures markets now surpassing spot market trading by a factor of 5 or more. While it is difficult to comment on the reliability of these statistics, there seems little doubt that the increased ease of leveraged trading has led to a substantial increase in volume. If the reported numbers are correct, overall volumes are now at least 10 times the levels we saw back in January of 2014.

This post was published at Dollar Vigilante on February 10th, 2015.