Quote from: JorgeStolfi on September 27, 2014, 02:23:30 PM

Quote from: Walrave on September 27, 2014, 01:13:26 PM

I've been watching the BTC price for a little while now and I'm wondering what peoples views are on the reasons for the fall in BTC price.

As I have written many times before, I believe that the Nov/2013 bubble was caused by the opening of the "popular" Chinese market. At least two articles in mainstream media claimed that in China there was a large population of amateur and semi-professional speculators, not particularly computer-savy, who used to trade all sort of commodities like fermented tea; and those people enthusiastically embraced bitcoin as a much better item of speculation. The main Chinese exchanges Huobi and OKCoin opened in Beijing only a few months before the bubble, and grew enormously during it.

The Apr/2013 bubble, too, was probably driven by China, specifically by BTC-China in Shanghai. Shanghai is a special economic zone, and BTC-China changed its management in early 2013 (and may have catered to computer types, rather than the amateur speculators above).

Almost all the large price changes since Nov/2013 can be traced to events that are relevant to Chinese traders, such as the Chinese government decrees that banned the use of bitcoin in commerce and finance, and various rumors and disclaimers about them.

In contrast, significant events that are relevant only to "the West" (the world outside China), such as Dell and other merchants "accepting bitcoins", have had practically no effect on the price. To me it is pretty clear that the Western exchanges largely track the Chinese ones through arbitrage trading (which may be a significant fraction of their trading volume).

There are only a few large price swings that I cannot relate to any external event, in China or in the West. In particular, I still have no explanation for the rally that lifted the price from ~450$ to ~650$ between May/20 and Jun/10. But my guess is that it, too, was related to Chinese events and affected mostly the demand in China.

Anyway, I believe that the cause for the overall decline since Jan/2014 should be sought in China. My guess is that, from February to May, those Chinese speculators grew increasingly disappointed with bitcoin -- not just because the stagnating price and the government's policies, but because they could not compete with the robots and other tricks used by the more sophisticated traders (which may have included insiders or special clients). Since those amateur traders have no other use for bitcoin in China, they probably sold their BTC and withdrew the yuan.

The Chinese exchange owners admitted this problem in early May and promised to make the field more level by suspending leverage trading and curbing high-frequency trading (a promise that, according to Bobby Lee, they broke not long after that).

This hypothetical exodus of amateur traders could explain the general downward trend from February to May, superimposed on the sudden swings related to specific external events; and the remedial measures taken by the Chinese exchanges may explain why the price remained relatively stable during May.

Thus, I see the drop of the last few weeks as being due to the Chinese traders returning to their state in early May. The unknown news that caused the surge in demand after May 20 were apparently negated.

In spite of all the losses so far, the price still seems to be quite a bit higher than what could be sustained by Western demand alone. On Apr/11 we had a glimpse of what would happen if the Chinese were to pull out completely: in response to some bad news, that again was relevant only to the Chinese market, the price briefly dropped to ~340$.

Quote

Old coin being spent in shops and businesses. These companies auto sell, so effectively people spending BTC they've stored for a while pushes BTC down.

Drops perpetuated by fear as people look to get out while BTC goes down hoping to hitch a ride when/if it rises again.

Rises in other markets that are attracting investors away from BTC (exacerbated by the fall in BTC price).

Yes, all these factors may be helping the decline.

Thank you, this is something I underestimated. I guess it could be a while before things pick up again in that case, sounds like black Tuesday in slow motion in China and we're just along for the ride.