An agent of change: bitcoins lure investors
Kevin Sun sold out his more than 1,000 bitcoins last week at the price above 5,100 yuan ($785) each, reaping an almost 100 percent return on investment when the digital currency hit a two-year high.
The Beijing-based professional individual investor poured money into bitcoins through the Huobi trading platform in February, after suffering unsatisfactory returns in the Chinese stock market since its crash last year. When he bought bitcoins, their price was averaging between 2,600-2,800 yuan.
Sun is not the only winner in the bull market in bitcoins, the most popular digital asset created and held electronically since its debut in 2009. It’s not minted like dollars or euros. Instead, it’s a peer-to-peer system allowing transactions to take place between users directly, without a real-world intermediary like central banks.
The price of bitcoins hit 4,440 yuan yesterday afternoon, after hitting 5,179 yuan high on June 17, touching a two-year record with a monthly surge of 75 percent. The increase made bitcoin one of the most profitable investments globally in the past month.
“The trading volume and price both surged, with new registered investors every day and many pouring in money taken out of stock and housing markets,” said Du Jun, co-founder of huobi.com, the Beijing-based trading platform, where daily volume exceeds 5 billion yuan.
China has become the world’s top bitcoin market, said trading firms Huobi, BTC China and Okcoin,
Since its debut in 2009, bitcoin has been accepted as payment for Wiki donations, Internet game items and even pizzas. It is used in many countries, including the United States, Germany, Britain and China.
But the digital currency is volatile. In 2013, the price hit 8,000 yuan and then dropped to less than 2,000 yuan in a short period.
This bubble, if indeed it is a bubble, is different from that of 2013. Industry analysts pointed to fundamental reasons for the price rise, including supply-and-demand equations, a flood of new Chinese investors and an easing investment environment.
A main factor is the halving of supply due to start in July, said Bobby Lee, CEO and co-founder of the Shanghai-based bitcoin trading platform BTC China.
Under bitcoin rules, the daily “production capacity” of bitcoins globally is to be cut in half every four years, starting in 2008. Next month, the daily global supply of new coins coming into the market will be cut to 1,800 from 3,600 a day now. Meanwhile, the maximum volume of the digital asset is limited to 21 million bitcoins, which makes it more valuable after each supply cut.
With limited investment channels and the potential risk of a yuan depreciation, mainland investors are seeking new opportunities and bitcoin is among the attractive options. The recent price surge has attracted about 10,000 new investors every day. More than 80 percent of bitcoin investors come from China, including new investors pouring money in from shares and the peer-to-peer sector, Du said.
“It requires short-swing trading skills, just like share trading,” said Sun, who had several years of experience in day trading before transferring to bitcoin investment.
He spends 12 to 16 hours a day on bitcoin trading and market research, said Sun.
The total bitcoin value globally surpassed US$10 billion with the recent price hike. And more than 90 percent of bitcoin transactions occurred in China, according to 8BTC.com, a professional bitcoin website.
Since February, the value of bitcoins has risen 75 percent, compared with a slight decrease in the value of the Shanghai Composite Index.
Blockchain, the core technology behind bitcoin, has becomes a buzz word in both finance and information technology industries. Insurance giant Ping An recently announced it is joining an international blockchain organization and is developing applications for institutional clients. More commercial Blockchain applications should spur the price of bitcoins, which have used Blockchain since its debut, said analysts.
Bitcoin and blockchain technologies are expected to play important roles if China decides to develop its own digital currency, a move mooted in a veiled reference by Central Bank Governor Zhou Xiaochuan in April, industry officials said.
In the bitcoin “world,” people called “workers” organized as professional teams called “mining farms” and “pools” use a “mining” device to mathematically find numbers that, in simple terms, determine how many bitcoins they obtain.
“Demand is far exceeding supply on our miner devices,” said Wu Jihan, founder of Bitmain, one of top mining device makers in the world. “We struggle to increase production capacity to meet the demand from workers and mining farms.”
The price hike has pushed the entry threshold of bitcoin production, which fuels demand for high-end miner machines with advanced tech features such as powerful chips and efficient energy management. In just several years of bitcoin production, the miner’s calculating ability has jumped 30-fold and energy efficiency improved 50 times, said Wu.
Bitcoin production has become more and more professional. Global bitcoin device makers are congregated in Shenzhen, while the miners are gathered in regions including Sichuan and Guizhou provinces, where energy costs are low.
Many clients have purchased more than 1,000 devices to form their own bitcoin mining farms and even pools, with well-managed miner devices and professional systems and software. Each mainstream miner machine costs about 3,000 yuan on average, said Bitmain.
Compared with bitcoin trading platforms, a start-up called Bitkan aims to generate income through offering bitcoin information and services, especially on mobile devices. It also offers over-the-counter bitcoin trading services, which allow users to finish transactions easily and rapidly, said Edward Liu, founder of Bitkan.
Industry officials, however, continue to warn of risks in bitcoin trading because of wild price fluctuations.
Despite a considerable return on his bitcoin investment, Sun admits it’s risky to buy back into the market now after such a sharp price hike in “such a short period of time.” He said he may return when the price falls about 15 percent to 4,300 yuan.