The Night Trade

ABERDEEN, SCOTLAND – So why is it that the bitcoin price only seems to go up at night? Why does it only rise between 10pm and 8am, like some kind of vampire?

As we illustrated in yesterday’s note, the overwhelming majority of bitcoin’s bull run since July has occurred during Asian daylight hours. If you only had exposure to bitcoin during the UK and US trading day, you would barely have made any profit at all.

So what’s going on here? Why is Asia so bullish and the West (until very recently) so apathetic?

When it comes to bitcoin, China’s dominance in mining is an elephant in the room. Over 60% of all bitcoin mining (the computing power which secures the bitcoin network) takes place in China, massively dwarfing the mining operations in other countries.

To put in context just how dominant China is in the exercise of extracting new bitcoin, the second largest bitcoin mining nation is the US – which holds the paltry title of hosting 8% of total BTC mining operations. Further down the podium it’s Russia, Kazakhstan, Malaysia and Iran (the UK doesn’t make it to the top list I’m afraid).

Worryingly, half of Chinese bitcoin mining takes place in Xinjiang, the same area where the Chinese Communist Party is actively engaging in utterly abhorrent and outrageous crimes against the Uighur population. It’s unlikely that the use of slavery (rebranded as “forced labour” by CCP apologists) which the region is notorious for is being applied to BTC mining, as it’s not a labour-intensive task (very similar to datacentres – just rows of computers ticking away).

But as somebody who avoids products produced in China and from Western companies which operate in Xinjiang, this statistic makes me feel uneasy about my bitcoin holdings. I do my utmost to avoid Chinese goods, as while the majority of Chinese citizens are of course not guilty of the CCP’s crimes, if you buy goods from a Chinese company you are capitalising a Chinese bank, which in turn can and will be used by the CCP to direct credit towards their strategic objectives, and empowers them to continue their tyranny. The “civil military fusion” strategy employed by the CCP means that the private sector in China, however innocent, is not truly private and will be used by the state to further its ambitions whenever convenient.

Could bitcoin be just another a useful pawn for Chairman Xi Jinping’s cadre? Or might it be in the future? And is this what’s behind the rise in BTC prices while we sleep at night?

I’ve heard some make the case that bitcoin is, and has been for some time, just another method by which the CCP hoovers up US dollars from the rest of the world. China needs dollars to maintain its massive credit expansion which is keeping its economy going, and to purchase critical commodities from the rest of the world (as few countries accept renminbi). This significant shortage of dollars creates strange phenomena in financial markets, like the CCP issuing large dollar bonds via companies in the Cayman Islands to finance naval expansion (Poseidon the profiteer – 14 January 2019).

Some believe that bitcoin is just another of these methods by which the commies are hoovering up USDs to keep the ball rolling. This would be achieved by bidding up the BTC price using “stablecoins” such as Tether – cryptocurrencies which are supposed to be backed 100% by dollars and are traded as if they are, but which are unaudited and opaque. Those in control of them can increase their supply at the drop of a hat, and some believe the CCP has a hand in this – expanding the supply of certain stablecoins without receiving any dollar or euro deposits to back them.

Once the price of BTC is being bid up in stablecoins, the dollar price follows as stablecoins are trusted; they are in the eyes of the market as “sound as a pound”. With the BTC price on the rise, this sucks in foreign buyers, who plough more real dollars into the market.

At this point, the manipulators can then sell the bitcoin they’ve bought with fraudulently created stablecoins for real dollars, and cash out. Unlicensed to print money, they have done so anyway and succeeded…

I am dubious of this theory. The opaque, unaudited nature of stablecoins has been a subject of intense debate for several years now. While some believe not being open about your operations means that you’re printing money with no backing, I suspect some of the secrecy is more likely due to the fact that they are hiding the nature of their business from the banks they are using to conduct their operations.

Any bank which aids a stablecoin provider is taking on a massive money laundering risk, not to mention the stigma being associated with crypto entails. Perhaps the stablecoiners are lying to their banks about the true nature of their business… or perhaps they are hiding the identity of their banks to protect their integrity.

To be clear, I’m sure plenty of stablecoins bend the rules with what is actually backing the tokens. But I don’t think it’s the CCP who is behind the significant flow of stablecoins that keep arriving in the market. I think it’s the other way around – it’s wealthy Chinese citizens who are using stablecoins to get their money out of China and away from the CCP’s clutches.

My theory is that they’re pledging their assets to stablecoin providers in exchange for stablecoins, which they can trade for bitcoin and use to funnel their wealth abroad. These assets might not be dollars, but financial assets, or even physical assets like gold. It would be foolish to reveal such assets are backing their newly created currency to the public, for it might compromise their clients and reveal to the CCP the true nature of their operation – so they don’t.

But that’s just a theory of mine anyway. BTC being used as a vehicle for capital flight from China is well established – but could this entire rally be a product of it? I completely understand why somebody would want to get their wealth out of the grasp of the CCP – but why now all of a sudden? Fear of a currency devaluation, or ever more restrictive capital controls and asset forfeiture from the criminal regime? I don’t know. If you have any ideas, send ‘em on to: [email protected].

In tomorrow’s note, we’ll take another look at this mysterious “night trade” and explore what I see as the biggest risk to bitcoin’s current mighty valuation.

Until then,

Boaz Shoshan
Editor, Capital & Conflict

Category: Investing in Bitcoin

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