Bloomberg: Automated high-frequency trading is dominating China’s Bitcoin market

According to Bloomberg, professional traders using high-frequency automated trading are now controlling 80% of Bitcoin transactions. Bitcoin offers around-the-clock trading arbitrage opportunities on various exchanges, allows participants to host their own servers on exchange servers, and offers zero transaction costs in China, where most of the world's Bitcoin activity is concentrated.

As Bitcoin trading volumes hit record levels this month, automated traders are also making record profits.

Taking advantage of market “imperfections”

Zhou Shuoji, a former IBM consultant who now runs FinTech Blockchain Group, a bitcoin hedge fund and venture capital fund, said in an interview with Bloomberg that by automating 24-hour trading, the company can profit from the tiny price differences in the process of changing bitcoin ownership. He said the bitcoin market is showing a "golden age" precisely because it is imperfect.

The vast majority of traders are not required to disclose their profits. In 2013, the Chinese government began banning banks from trading bitcoin, and capital controls make it difficult for foreign companies that might disclose their profits to gain trading share on Chinese exchanges.

Chen Zhenguo, founder of BotVS, a Chinese automated bitcoin strategy platform, said he has now achieved a 50% return, but he did not provide relevant information to support his statement.

How long will high-frequency trading continue to dominate the Bitcoin market?

The dominance of professional traders is raising some questions - how long will this highly profitable model last?

Meanwhile, bitcoin price volatility has deterred some high-frequency trading firms. In addition, China's regulatory impact is also a concern. The central bank's recent on-site inspections of three major bitcoin exchanges for money laundering and market manipulation have shaken the bitcoin market. Such regulation of stock index futures caused a 99% drop in trading volume in 2015.

However, officials may eventually decide that Bitcoin is too small to warrant intervention. Bitcoin's market value is currently around $13.5 billion, while China's stock market is as high as $6.5 trillion.

Arthur Hayes, a former Citigroup trader who now runs Hong Kong-based bitcoin derivatives firm BitMEX, said most Chinese automated traders focus on cross-currency arbitrage.

Chinese exchanges determine Bitcoin development trend

According to Bloomberg, OKCoin estimates that 60% of its transactions are completed through high-frequency trading. For BTC China and Huobi, it is 80%.

Neil Woodfine, COO of cross-border payment system company Remitsy, said that there are about 10 large bitcoin exchanges in China, but the majority of bitcoin transactions are accounted for by the top three bitcoin exchanges.

Instead of charging transaction fees, Chinese exchanges charge withdrawal fees. They also offer custodial services and margin trading services.

Zhou believes that the potential of distributed ledger technology is greater than that of Bitcoin itself. He said he cannot predict the direction of the market in the next few years because it is still young and will be affected by regulation. But for now, he will continue to automate high-frequency Bitcoin trading.