When a dip like this (330 to 320 in a few minutes) appears, all you need to do is to buy the fxxking dip. Every trader knows that and do that. You should do that as well. Just a friendly reminder.

Since the introduction of Chinese future market, I started to suspect the existence of bitcoin bots developed by those Chinese exchange companies. The unusual volume, the unusual bids/asks and the unusual collapses/rallies all point to this suspicion.

The intention of those bots are not merely to window-paint the trading volume. The true intention of those bot is to artificially increase the bid/ask spread and hence increase the profits they made. Usually, the selling activity of the bots should balance with the buying activity of them, because the goal is merely to manipulate the spread. However, selling activities may accidentally overweight buying activities, due to the incompetency of their codes or some other reasons, which will in turn trigger a flash collapse and vise versa.

Going forward, with the improvement of the bot algorithm, I believe fewer and fewer flash crash will be observed. And if there is any, it must be triggered by the collective forces of human rather than stupid bots.

The price drop from 380 to 310 could be explained by a series of factors.

1. Recently, global commodity and equity market enter into a "risk off" mode that all risky assets, including bitcoin, are being sold off. You may challenge this by arguing the raise of Ripple. But 50% of ripple is controlled by Ripplelab. Therefore, it is not a free floating asset class and will not correlate with the other risky assets.

2. Year end tax selling. 2014 is a bear year for bitcoin holders. Some investors may want to realize the loss before the year end to gain some tax benefits.

3. Miners quit. Declining price incentivizes small and weak miners to quit and quiting miners tend to sell all of their storage.

4. Chinese future market. Chinese future players are overwhelmingly accumulating short position by futures.

But this declining trend will be exhausted after all and will be definitely turned around by the following factors.

1. Global equity market will stabilize with the announcements from central banks that easing and low interest rates will continue in foreseeable future.

2. Tax selling stops by December 31, 2014. Investors will relocate their investment portfolio in January 2015. Till then, I believe some value investors will start betting on two biggest losers in 2014, oil and bitcoin.

3. Once all small and weak miners quit, the bitcoin mining industry will be controlled by few monopolies. By then, the market landscape will approximate Ripple. The conglomerate of strong miners has the power to manipulate the price to protect their interests. They can do it easily by rationing the daily sale of bitcions, or by heavy public promotion, etc.

4. Too many retailing Chinese bears are shorting the bitcoin. The whales in Chinese future market will start pumping soon and squeeze those retailing bears to death. If they lift bitcoin from 300 to 400, image how much they can make from those 50 times leveraged future contract!!!