Bad news from China causing panic sell again?

[Tzupy]

Correct. Mat, you used to trade on BFX, can you explain under what conditions the leveraged longs would be liquidated?
I believe those are responsible for most of the pump from 450$ to 680$.

[MatTheCat]

Correct. Mat, you used to trade on BFX, can you explain under what conditions the leveraged longs would be liquidated?
I believe those are responsible for most of the pump from 450$ to 680$.

A rhetorical question I presume? But ok.

Those leveraged longs would be liquidated at either:

a. The Point where the traders got cold feet and were racing to preserve profits and/or minimise losses.

b. The Point where Bitcoin dives so far that their positions are force liquidated resulting in the entire capital in their trading accounts being wiped out.

If any trader for example went leveraged long at $650+, taking out 2.5 leverage ratio with the entirety of the USD in his trading account, then he would be staring down the barrel of total liquidation of his position right about now, another $30 drop or so might do it, unless he recapitalised his account. If however there are a whole bunch of leveraged Bitfinex traders holding out on crashing long positions and cushioning them with further capitalisation of their trading accounts, and they do indeed manage to ride out the storm, then we could expect a shit ton of selling pressure on the way back up. If it transpires that this mad break out was sponsored largely by leveraged trading, then we are likely still in an Elliott Wave B of a Wave [4] correction, as opposed to in the midst of a new impulse wave. If this were to be the case, then further upside from here will be limited. Indeed, Bitcoin hitting $750 would be an absolute text book 50% counter trend rally top, for the correction from $1160 to $340.

Also worthy of note, is that the Selling pressure has all come from Stamp for this leg down with other exchanges kind of following into line behind them. Stamp doesn't do leveraged trading, all the other large exchanges do. It seems almost like Stamp knows that the market is balanced right up high on leveraged stilts at the moment.

[Tzupy]

No rhetorical question, I just don't use BFX and leverage trading, so I wasn't sure. Thanks for explaining how it would work.

[zimmah]

Found an interesting post on one blog:

As Caixin, media group providing financial and business news, reports, The People’s Bank of China issued a document on further consecutive prevention of risks associated with Bitcoin.
Chinese authorities’ regulation of Bitcoin has been strengthened on 3d of December, 2013, when The People’s Bank of China and five associated ministries issued “Prevention of Risks Associated with Bitcoin”.
It was required that financial and payment institutions hadn’t to use Bitcoin pricing for products or services, hadn’t to buy or sell Bitcoins, hadn’t to act as a central counterparty in Bitcoin trading, hadn’t to offer insurance products associated with Bitcoin, hadn’t to provide direct or indirect Bitcoin-related services to customers, including: registering, trading, settling, clearing or other services; accepting Bitcoin or use of Bitcoin as a clearing tool; trading Bitcoin with CNY or foreign currencies; storing, issuing Bitcoin-related financial products; and using Bitcoin as a means of investment for trusts and funds.
In March The People’s Bank of China issued “Circular on Further Strengthening Bitcoin risk prevention work”, the document required banks and third-party payment agencies to close all trading accounts within the territory of more than a dozen Bitcoin platform.
In mid-May there were already 13 banks (including five state-owned commercial banks and joint-stock commercial banks mostly) and partial payment institutions announced that hadn’t longer bitcoin trading accounts.
Currently 15 bitcoin exchanges of China were reviewed to exclude the possibility of access to the network. Among them such large-volume exchanges as BTC China and OKCoin. As soon as this news came, rumors of the possible closure of all Chinese Bitcoin exchanges spreaded immediately, and Bitcoin prices fell more than 10%. Likely with the beginning of a new day this tendency will increase.

Original post in english found here: http://ecurrency.ec/2014/06/%D1%80%D1%83%D1%81%D1%81%D0%BA%D0%B8%D0%B9-%D0%B4%D0%B5%D1%8F%D1%82%D0%B5%D0%BB%D1%8C%D0%BD%D0%BE%D1%81%D1%82%D1%8C-15-%D0%BA%D0%B8%D1%82%D0%B0%D0%B9%D1%81%D0%BA%D0%B8%D1%85-bitcoin-%D0%B1%D0%B8/

That blog also has a link to original post from Chinese website. Seems legit to me, but the strange thing is that CoinDesc and other major blogs know nothing about it.

I bet here are many traders from China, what's happening there? Any proof or rebuttal from CEOs of local exchanges maybe?

Where have you been? Price falling is because FBI will sell Silk Road btc by the end of June.

that doesn't make any sense, that would be like saying the price is dropping because they are anticipating a price drop due to FBI selling coins.

I think it's partly because of the 51% FUD from GHASH and also because we have been rising in price pretty fast the past weeks.

[CounterStrike]

China fuel the panic sell.

[MatTheCat]

No rhetorical question, I just don't use BFX and leverage trading, so I wasn't sure. Thanks for explaining how it would work.

Yeah....but you are aware that with any kind of leveraged trading, the trader doesn't actually own anything and has taken on debt to either sell or purchase an asset. Two essential features of leveraged trading are therefore the fact that the leveraged position is generally a temporary one whereby the trader seeks to quickly profit from market momentum, and also that in a leveraged trade, the trader risks losing everything he has in his trading account.

In the case of a long position for example, If Bitcoin were $500, and I bought 10 BTC with $5K, then I would own 10 BTC. If Bitcoin went down to $300, I would still own 10 BTC.

If on the otherhand I opted to leverage my position and I used my $5K to buy 30 BTC, then I would not own 30 BTC. I would owe the exchange $10K and would be paying a fairly usurious interest rate on that loan and I would be hoping to repay the debt with the procedes of selling that 30 BTC back into market for higher price than I paid, which means I keep the profit margins for myself. If however the market never went my way, and Bitcoin dropped down to $350, then the exchange would force sell my Bitcoins onto the market in order to insure that I had the funds to repay my debt. Thus I would lose 100% of my capital unless I funded my trading account with further USD and I would not own any Bitcoins. I would be totally wiped out.

If this rise has indeed been based largely on leverage, then that is very very bad. It means we are essentially still in a bear market and this was an over exuberant counter trend rally. Worryingly enough, I notice that the the rate of USD swaps on Bitfinex is still at ATH, despite the strong retrace. Having said that, there is no means of measuring the quantity of that leverage that is actually actively being used in leveraged long positions.......but then if it isn't being used, why would anyone take it and sit paying high daily interest rates on it?

[Tzupy]

I am aware that with leveraged trading one risks losing 100% of the trading funds if things go really wrong.
That's why I don't do it (yet), I'd have to be 99% sure of a market move. Maybe in the future, with a limited % of my trading funds.
I'm not saying all the last month's uptrend was just leveraged pump, but that it was amplified above 600$ into overbought territory.
And if this correction drops below 500$, it might mean that many BFX traders will lose a lot (because of leverage).

[MatTheCat]

I am aware that with leveraged trading one risks losing 100% of the trading funds if things go really wrong.
That's why I don't do it (yet), I'd have to be 99% sure of a market move. Maybe in the future, with a limited % of my trading funds.
I'm not saying all the last month's uptrend was just leveraged pump, but that it was amplified above 600$ into overbought territory.
And if this correction drops below 500$, it might mean that many BFX traders will lose a lot (because of leverage).

I sit here, and most of the time, I 'kind of' know which way the market is heading. That is sitting here looking only to take a good old fashioned leveraged long position, and knowing when the market might go in my favour or go against me. Therefore I might be able to justify the bright idea to myself, of going over to Bitfinex for a bit of leveraged trading. For example, I have been near term bearish since $645, when I took a loss on a long position because I believed that the market was going down. I had buy-ins triggered between $560 - $600, a position which I folded last night at $590 ($589.98 to be precise). So on the face of things, I have called the market pretty well and I could have made absolutely blistering profits if only I had made my way over to Bitfinex and shorted back when I exited my long position (BTX was still $660 back then). However, as soon as I start playing with leverage, funny things start happening in my head. I learned this lesson the hard way. I wouldn't be surprised if I was sitting on a net loss right now, had I chose to get some funds over to BFX in order for a bit of leveraged trading, even though my finger has been pretty close to pulse of the market the whole time.

Anyhow..looks like we have near parity again between Stamp and BFX. Looks like a lot of leveraged longs are folding their hands at last. Big selling volume on BFX, but not very much on Stamp.

[Tzupy]

Yeah, when the risks are too high (with leveraged I mean) I supposed it's difficult not to become emotional, and then make mistakes.

Currently China is leading the downward movement. But on BFX the ratio asks / bids has dropped to about 300$ / coin. 

[MatTheCat]

Yeah, when the risks are too high (with leveraged I mean) I supposed it's difficult not to become emotional, and then make mistakes.

Currently China is leading the downward movement. But on BFX the ratio asks / bids has dropped to about 300$ / coin. 

China?

Really?

Not on the charts I am looking at.

This was Bitfinex.

[Tzupy]

China didn't drop so much yesterday, so today they were catching up, which resulted in a more bearish look.

But what's happening on BFX is getting a bit scary. Even if we are still in wave C, this shouldn't have been a major drop.
I suppose BFX going down hard will also somewhat drag Bitstamp down too.

[MatTheCat]

China didn't drop so much yesterday, so today they were catching up, which resulted in a more bearish look.

But what's happening on BFX is getting a bit scary. Even if we are still in wave C, this shouldn't have been a major drop.
I suppose BFX going down hard will also somewhat drag Bitstamp down too.

That will be the long squeeze that has been getting talked about for the past week or two, only for the usual bulltards to pop up and tell us all how the maxed out swaps on Bitfinex are actually bullish.

On Stamp, which is my chart of reference for analysing Bitcoin, we have just tested the long term support line. This is the support line that was tested back just a couple of days before the break out on May 20th. It was tested on the $340 crash. Tested on the October Silk Road Crash, and dates back to where Bitcoin was trending in Jan 2013. If Bitcoin is to rebound and head for the sky, then this is surely the bottom. If however that trendline fails to hold.....then Bitcoin is going down very hard.

[segeln]

On Stamp, which is my chart of reference for analysing Bitcoin, we have just tested the long term support line. This is the support line that was tested back just a couple of days before the break out on May 20th. It was tested on the $340 crash. Tested on the October Silk Road Crash, and dates back to where Bitcoin was trending in Jan 2013. If Bitcoin is to rebound and head for the sky, then this is surely the bottom. If however that trendline fails to hold.....then Bitcoin is going down very hard.

go on and start learning to draw trendlines.The 2013 (secondary to the Primary 2011 one)Trendline was already broken in April2014

[Arghhh]

At this point, I would take ten China bans over the 51% damage miners have inflicted upon themselves.

[johnwest]

I've just added China to my ignore list

Bitcoins Communites do not lke China.