"China’s Next Time Bomb" – A Look Inside The Insane World Of China’s Bitcoin Traders
By Tyler Durden
The recent tumble in bitcoin, driven by a stampede of Chinese sellers who until last week were willing buyers at any price, has exposed the weakest link in bitcoin’s until recently exponential rise: the mood and social psychology of Chinese momentum and bubble chasers, who like clockwork rush into any one given asset, bid it up to ridiculous levels, watch the bubble burst, before moving on to the next bubble.
The good news is that courtesy of $25 trillion in local savings, or more than double the amount in the US, the bubble eventually returns to where it burst. The bad news is that in the meantime, those who chased the original bubble lose most if not all of their money.
Unfortunately, for most of China’s bitcoin traders, the bad news may be just starting.
Take the story 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, as SCMP recounts his tale, 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.
With the market in free fall, Ding was unable to log into his account with China’s biggest bitcoin trading platform, Huobi, meaning he could not sell off his holdings or top up his principal to meet the margin call. By the time he managed to log on in the evening, most of the bitcoins in his account had been compulsorily sold off by Huobi for 6,361 yuan each, lower than his purchase price of 8,101 yuan. This included the part of his investment he had bought using a loan he obtained from Huobi by pledging the bitcoins he owned originally.
“I have taken on big risks when making leveraged betting, but the collapse of the trading system made me unable to run stop-loss orders, so I think the platform should compensate for investors’ losses,” Ding said.
The platform disagrees.
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.
So to recap… trading the extremely volatile bitcoin on massive, unregulated margin, in an exchange that arbitrarily locks out its clients?
What can possibly go wrong.
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According to SCMP, “many analysts and investors fear China’s bitcoin …read more
Source: "China’s Next Time Bomb" – A Look Inside The Insane World Of China’s Bitcoin Traders
