Markets Weekly is a weekly column analyzing price movements in the global blockchain token markets. This edition looks at the week from 7th through 13th January.
Bitcoin prices experienced significant volatility for much of this week, calming down during the last few sessions.
Amid these fluctuations, the digital currency’s price rose to as much as $942.06 on 8th January and declined to $752.11 on 11th January before trading between reasonably tight ranges for most of the week’s remainder, according to the CoinDesk USD Bitcoin Price Index (BPI).
Market analysts cited ongoing Chinese regulatory developments – and the resulting suspense they have been creating for market observers – as driving this week’s bitcoin price movements.
Rik Willard, founder and managing director of Agentic Group LLC, framed the situation thus:
“Right now, China is calling the shots in bitcoin. When they sneeze, the market catches a cold.”
At least for now, the uncertainty surrounding Chinese regulation has once more taken center stage in the world of bitcoin trading.
Driving volatility
These ongoing regulatory developments were first credited with provoking notable uncertainty and significant price volatility in bitcoin.
In recent weeks, the People’s Bank of China (PBoC) has held meetings with representatives of bitcoin exchanges Huobi, BTCC and OKCoin, announcing 6th January that it had provided these exchanges with warnings.
Bitcoin prices suffered consequent volatility, falling more than 10% on the day of the announcement. The suspense created by the news continued to fuel intense price fluctuations, as bitcoin surged above $940 on 8th January before plunging to as little as $878.10 the following session.
On 11th January, bitcoin prices dropped to $752.11 – their lowest since 2nd December and a more than 40% drop from the recent high of $1,153.02 reached on 5th January, BPI figures reveal.
When explaining this decline, some analysts stated that the Chinese government’s efforts to more closely monitor the nation’s bitcoin industry were creating significant anxiety for traders.
A new calm
While bitcoin prices experienced several days of volatility, these sharp fluctuations seemed to calm somewhat from 12th January, at which point the digital currency began trading within the relatively modest range of $745 to $775.
Bitcoin prices broke out of that range about halfway through the session, but even then, their volatility was limited, as the digital currency failed to reach $830 on either 12th or 13th January.
When explaining the reduced volatility, more than one analyst stated that market participants had taken a step back to wait and see what would happen.
Arthur Hayes, CEO and co-founder of leveraged bitcoin trading platform BitMEX, told CoinDesk that the market was in a state of “suspense” as it waited to see what action the PBoC would take in regards to the major Chinese exchanges.
He speculated that the central bank would both eliminate margin trading at these exchanges and “require a minimum fee to be charged on all trades.” Hayes speculated that these moves would lessen speculator interest in bitcoin.
Bank guidance
Bitcoin traders got their first piece of clarity on 13th January, when BTCC, OKCoin and Huobi quietly revised their margin trading policies. Bobby Lee, CEO of BTCC, told CoinDesk that his exchange made these changes after receiving guidance from the central bank.
While Hayes spoke to the potential negative impact that such changes could have on bitcoin markets, some analysts seemed more optimistic about the situation.
“There has been a relative calm over the market since the PBoC news was released,” said Ryan Rabaglia, head trader for Octagon Strategy.
Petar Zivkovski, COO of leveraged bitcoin trading platform Whaleclub, provided similar sentiment:
“The bitcoin markets are relatively calm as traders await more clarity from the PBoC investigations that are taking place in China as we speak.”
A silver lining?
While some analysts have expressed concerns about how the looming possibility of new regulations might be creating anxiety for traders, Kong Gao, oversea marketing manager for Richfund, took a different tack.
“The creation of regulations will more likely benefit the industry than hamper it,” he told CoinDesk. “We are already seeing this happening. BTCC has just announced that they had stopped providing leverage and other exchanges will likely follow suit.”
He elaborated on the situation’s foreseeable costs and benefits, stating: “We will likely experience a price decline, but bitcoin’s volatility will be reduced. Reduced volatility, combined with a stamp of approval from PBoC with regulation, will likely positively contribute to bitcoin’s adoption in China and elsewhere.”
Zivkovski took a similar view, saying:
“In a nutshell, regulating margin trading is a very smart consumer protection policy.”
The reduced use of margin should lower the incidence of long and short squeezes, he emphasized, which should reduce volatility.