Behind Bitcoin’s Triple Increase in One Year: Programming Teams and Third-tier Women Dance Together

As a well-known tradable virtual currency, the fierce performance of Bitcoin in the past month has attracted special attention.

According to data from Huobi, the largest bitcoin trading platform in China, the price of bitcoin has risen by 51.75% to 4,558.87 yuan in the past month ending June 15. This price is nearly three times the price of 1,525.53 yuan in the same period last year. In terms of transactions, the amount of bitcoin traded on Huobi has reached 27.3 billion yuan in the half month since June this year alone.

Such market conditions are making veteran Bitcoin investor Lin Qiang (pseudonym) feel that trading is more difficult than usual. "I hope there will be a wide range of fluctuations so that there will be some investment opportunities. If it keeps rising, the cost will be too high and it will be difficult to operate."

There seems to be no unified answer to the reason for the rapid rise of Bitcoin. It may be a replica of the Changchun Clivia-style speculation frenzy, or it may just be a natural rise derived from the slowdown in Bitcoin supply under inflation expectations.

A reporter from 21st Century Business Herald learned that in the absence of effective supervision, the hot Bitcoin market is composed of a complex group of investors - among them are veteran players with a three-year return rate of more than ten times, programmatic teams engaged in cross-platform arbitrage, and even middle-aged women who have heard the news from third- and fourth-tier cities.

In terms of trading mechanism, the advantages that A-share market places do not have, such as T+0 trading throughout the day, four times leverage, and short selling with coin margin, also make Bitcoin carry the wealth dreams of investors from different groups and classes. But at the same time, the uncertainty behind the market, such as the lack of supervision and strong speculative attributes, seems to be forgotten by the rapidly rising market.

Stories of players who earned more than ten times their earnings

As a veteran Bitcoin investor, keeping a close eye on the market has become a daily habit for Lin Qiang (pseudonym).

What attracted Lin Qiang to Bitcoin trading was the wealth effect of Bitcoin's fierce rise at the end of 2013. In November of that year, Bitcoin rose by 473.63% in just one month, and the unit price also increased from 1,200 yuan to 8,000 yuan.

At that time, the People's Bank of China and five other ministries and commissions urgently issued a "Notice on Preventing Bitcoin Risks". In the following two years, Bitcoin fell into a bear market, with the unit price falling to as low as 900 yuan in early 2015.

"The reason I paid attention to it was because there was a wealth effect in 2013, when the price rose to 8,000, and there was media publicity; secondly, this is the digital currency industry, which is a relatively new thing; thirdly, after the decline in 2014, I felt there were some investment opportunities, so I intervened," Lin Qiang told the 21st Century Business Herald reporter.

According to Lin Qiang, he has gained an absolute return of up to ten times since he started investing in Bitcoin in 2014. "My strategy is very simple, which is trend investment and absolute return." Lin Qiang said that while investing in Bitcoin, he will also pay attention to investment opportunities in other fields including stocks and futures.

However, even though he achieved a tenfold return in two years, Lin Qiang is not the Bitcoin investor with the highest return rate in his circle. Lin Qiang told reporters that the investor with the highest return rate he has ever seen is a post-90s generation. ——"A friend of mine, born in the 1990s, came to Beijing in 2013 with a capital of 30,000 yuan, and now has 6 million yuan in assets, all from Bitcoin."

In fact, the reason why Lin Qiang and others can obtain excess returns, in addition to the trend opportunities of Bitcoin, is the introduction of the leverage mechanism.

"It depends on whether investors can borrow money from outside to speculate (Bitcoin) according to the risk they can bear." Lin Qiang said, "Suppose you lose 50% or 60% after borrowing, but you can bear the risk, then you can borrow. There are short-selling mechanisms and futures, and you can borrow coins to sell (you can raise funds or borrow coins)."

It is worth mentioning that leveraged trading of Bitcoin is one of the services provided by trading platforms such as Huobi.

After registering an account, a reporter from 21st Century Business Herald found that the system would send users a video email on how to do leveraged long and short trading, while Huobi.com charged a handling fee of 1‰ on the leveraged trading amount. According to Huobi.com, its leveraged trading service is provided by an overseas legal person named "Hong Kong Bit International Co., Ltd."

In Lin Qiang's view, choosing an effective trading platform is crucial for Bitcoin investment. "Choosing a platform is very important. The first thing to consider when choosing a platform is its reputation; the second is its depth (liquidity); the third is the overall transaction cost; and the fourth is the stability of the platform. Currently, I basically only trade on Huobi."

Huobi, where Lin Qiang and others have been lurking, has now become the largest Bitcoin trading platform in China. According to its platform data, as of 18:00 on June 15, its cumulative transaction volume has exceeded 1.04 trillion yuan.

Just like a replica of A-shares

If we ignore the currency attributes and trading mechanisms, the group distribution of Bitcoin investment seems to be becoming more like A-shares.

A reporter from 21st Century Business Herald learned that both professional institutional investors who use programmatic (API) and quantitative strategy trading, and middle-aged people who lack investment experience in third- and fourth-tier cities and other regions have already been involved in this market to a large extent.

Lu Yue (pseudonym) is a representative of institutional investors in bitcoin who engages in specific transactions. "There are companies that set up funds to do this, such as Hong Kong BitGo Trading Company." Lu Yue told the 21st Century Business Herald reporter, "It mainly does API transactions, that is, using codes and robots to conduct automated transactions."

Since Bitcoin can be traded on multiple unconnected platforms such as Huobi, OKCoin, and BitTrade, the price difference between different platforms has become the main target of API transactions.

"Because of the large arbitrage space, the price difference between (Huobi.com) and several other platforms was about 2% to 5% a few days ago, so the price difference is much larger than usual." Lu Yue told reporters, "It also has something to do with the trading volume. When the trading volume is large, the trading volume will increase accordingly, and the frequency of trading robots will also increase."

Lu Yue said that the characteristics of API trading are similar to those of futures trading, with high frequency and low risk. "It is basically risk-free arbitrage. On the one hand, you buy, and on the other hand, you sell, and the rate remains basically unchanged. The funds are increasing, so it is more stable than other speculation and hype, and basically you make a profit every day."

In Lu Yue's opinion, the biggest impact on her trading is the lack of a regulatory framework. "I hope there will be regulation, because now there is no regulation, and any news released by the media will cause price fluctuations."

While professional institutional investors were engaging in arbitrage transactions, another group of retail investors also noticed the investment opportunities in Bitcoin.

According to an investigation by a reporter from 21st Century Business Herald, Bitcoin transactions have spread to some third- and fourth-tier cities, and many middle-aged people there have also joined the ranks of Bitcoin investors.

"Many middle-aged people who work in banks or have retired here are investing in Bitcoin, and most of them are women." A person from the banking regulatory system in Northeast China said, "Everyone knows about Bitcoin investment through word of mouth, and the general amount is 70,000 to 80,000 yuan. Many cadres are also doing it. For example, someone I know from the People's Bank of China in our area is also investing."

In the view of this banking regulator, due to the lack of effective supervision of Bitcoin investment, there are large gaps and uncertainties in its trading mechanisms, market risks, and investor suitability management.

"The fundamentals of Bitcoin production reduction may indeed lead to price increases," said the aforementioned banking regulator. "But at present, it is like a lawless place in China. Because it cannot become a currency, (Bitcoin) can be said to have become an investment or even a speculative product. There is still a lack of sufficient constraints. Investors should pay attention to the risks involved."

In fact, while some investors have doubled their profits, many others have ended up losing money. Lin Qiang said that Bitcoin is an investment field where "one general's success depends on the sacrifice of thousands of others."

"The winners' money is the losers' bones, so the losers should be the majority." Lin Qiang said frankly.