What everyone needs to understand is that Bitcoin is a gift from heaven for every "productive" country's central bank.
Much of the world is trying to get away from the USD as a global "reserve" and trade-settlement currency, without the masses jumping into gold and without pissing of the US (govt, economy, Wall St).
Bitcoin is so much more "tolerated" by Germany and China than it is by the UK and the US, it's pretty obvious.
You don't really want the masses to rush into gold -- it needs to stay cheap so oil can stay cheap for whole economies, and central banks can acquire more of it for a future when intra-national trade imbalances may be settled in a proven, timeless, globally-accepted (at the central bank level) reserve asset that's not subjected to any one nation-state's (or state union's) wims or woes. You also don't want the savers to store their excess savings or retirement funds in USD or even your own currencies, because they'll be screwed over. You also don't want all the excess liquidity printed over the last 5ish years to end up as real-world price inflation on store shelves. Something like Bitcoin solves all these beautifully, and carries no diplomatic concerns because it's something that citizens are now just free to adopt as they see fit.
You think the Chinese want USD long-term? Why on earth would they? They wanna convert them into other wealth assets, even BTC if they like, asap. Think about the situation today or more so the last decade or three: they export something, take in USD. The producer takes those to their bank to convert into spendable yuan. Their bank takes those to the central bank for yuan. Their central bank doesn't wanna sit on them either so (traditionally) they buy treasuries for those USD, which sends the USD back home to the US where Americans go on the next shopping spree of buying Chinese (in our example) goods (circle repeats), and when the treasury is due, freshly printed USD plus a small interest "gain" go to China central bank and they're left holding the bag once again. What to do with those homeless USD? It's called reserve-currency privilegue and really the world would be happy to abandon it, but you can't just flip the switch or madness would ensue. Similar situation for the majority of producing-and-exporting countries.
The Chinese are not acquiring USD and treasuries so that they can own spendable assets. They are doing so in order to push the value of their currency down, so that their export goods become more competitive.
This is done because while currency fluctuations and inflation can jump and fall hugely overnight, an industrial base takes DECADES to build up and decades to destroy. China is planning for the long term.
If there ever comes a point where the US industrial base has been effectively destroyed and China makes everything, they can stop the treasury buying and start cashing in. Inflation in the US will go NUTS and the US will have to build an industrial base from scratch -- starting essentially in China's position circa 1980. Not a happy place.
China will have lost trillions following this strategy, but the US will effectively stop being a strategic or military threat if it is followed through to its logical conclusion.
Bitcoin is not a godsend to the Chinese government, as it creates a means to let capital exit the country (which they are desperately trying to prevent).
This reminds me of a friend of mine who is Hong Kong born Chinese. I asked him if he wanted to go to a festival, but he said that he couldn't afford it. I knew that he earned quite a lot of money and pay day had just gone by, so I asked him if everything was OK financially.
His answer blew me away. He explained to me that Chinese families don't think like western families. He pays his parents a seriously large percentage of his earnings every month. If he wants to buy a house or a car or anything that has a large ticket price then he, or his siblings just have to ask his parents. They never have to go into debt and debt was very actively discouraged.
When I asked him why he explained to me that they see the extended family as a single unit or entity. Every generation is deeply involved with the next financially. Companies started by the family are seen as very long term investments. Those investments span more than one generation. In other words, he could start a company that is successful by the time his grandchildren take it over.
The idea that I personally would not benefit, but my grandchildren would, was nuts at the time. Now I have children I'm starting to understand this paradigm shift.
This is of course a generalization, but the Chinese appear to be very patient and serious long term investors.
I'm a native Brit but my wife is mainland Chinese. My wife and I have always shared our accounts anyway, and now we're completely plugged in to the family financial system.
It's a little different with us. Her sister has a family in China (Hohhot) and her parents sometimes live with us (for several years at a time) and sometimes over there. Whoever they live with supports them completely, and get their pensions. So the flow is reversed from what you describe, but the basic principle of shared financial resources and support is the same. e.g. My wife's parents own two flats in China and the revenue from them go to the Chinese branch of the family. We all know basically what everyone else earns and the money from the 'apex' of the family tree goes where it makes best sense. In contrast on my English side, every family unit is discrete. My parents helped us with the purchase of our first house, it's not that there's a lack of generosity in any way, but arrangements are on the basis of one-time gifts. The Chinese way is continuous real-time resource management but in service of a very long term view.
This is the most important reason why Chinese family members don't love each other that much. You never know if your relatives are just nice to you or they are after your money. It complicates everything and when things go bad they go really bad.
If managed well it can be great though. My college roommate has a "college sponsorship" program within his extended family which helps pay his tuition.
I've had to think hard before replying to this. I don't think that's fair at all. I would agree that the Chinese put a premium on loyalty, and don't have as much of a culture of open expressions of affection, but that's mostly a matter of appearance and I've seen it break down many times. I'm not down voting you, because I can see how you might think that and in the general for all I know it might even be true, but it doesn't fit with my experiences of my own Chinese family.
> globally-accepted (at the central bank level) reserve asset that's not subjected to any one nation-state's (or state union's) wims or woes
Gold is hardly that; Chinese reserves of gold right now are unknown, but they are currently the largest miner and buyer of it (the government, consumers also buy). Given that we aren't sure what the real supply is (China's biggest state secret), the price of gold will remain volatile.
> You think the Chinese want USD long-term? Why on earth would they?
They want to continue to sell us stuff without overheating their economy, which is why they are happy to buy treasuries at a loss (the interest is not high enough to cover inflation). No one is really unhappy, even the Chinese, that USD is a reserve currency as long as the American economy is robust enough to be the largest consumer as well as a debtor of last resort (via treasuries). Bitcoin does nothing here: the US is a safe entity to lend to, Bitcoin doesn't magically create a similar entity.
Put it this way: money simply can't be saved without someone else spending that same money at the same time. China couldn't just sit on all of their USD, gold, or bitcoins even if they wanted to. Buying and sitting on gold doesn't magically create or even preserve value that you can call on to use in the future.
The fix for China is simply to promote more domestic consumption so they need to save less, which would also balance out the export/import deficit. Given that consumption can only be increased gradually (too much inequality in China), this isn't going to happen with a switch flip and in the meantime the Chinese would definitely prefer stability.
Money can't be saved without someone else borrowing it, even if that someone is just the bank.
Saving is normally transmuted into investment: spending money on machinery/land/buildings/software development etc that will offer a positive return in the future. Investment counts as someone else's income and therefore increases GDP.
Simply putting cash aside is basically hoarding, and normally loses you value over time unless the economy becomes deflationary, which tends to turn into a disinvestment and unemployment disaster.
In order for the economy to be efficient, production must be consumed at about the same time it is produced; otherwise you have to expend resources to store produced goods, which may be perishable or deprecate in other ways (e.g. technology).
Money, gold, or bitcoin doesn't save any value in itself. If everyone on earth was thrifty and living below their means, the extra value they were saving would pretty much evaporate: bread would rot, clothes would pile up and become moldy, iPhones would become outdated before they were even used. Eventually, the will to produce goes away as you can't sell all of what you are producing, and an equilibrium is reached where you live about at your means: if you must save for future expenses, this is only possible if someone is spending more now via a loan.
This is why China being a country of net-savers is bad, and a push for social or mandatory health insurance is a good thing: people don't need to save themselves for medical emergencies, and can instead consume. But until then, the ability for the Chinese government to lend money to someone reliable (the USA), is quite useful as there is a good chance they can effectively draw on their savings later.
So the Chinese plan is to make the West poor by making vast quantities of cheap goods and sell them to us at discount rates, while manipulating their currency to make sure we get the best deal possible. In return we give them vast quantities of paper with IOU written on them.
We're toast!
The Japanese tried that back in the 70s and 80s. How did that work out for them? I also seem to remember they had a huge construction boom, skyrocketing property prices and a very high domestic savings rate.
If you look into China's real estate market they've invested billions to build cities...empty cities. They continue to build because citizens' investment options are limited, so real estate is one of the few "attractive" options. So they end up with ghost cities full of unoccupied office buildings, condos, malls, etc. Crazy, right?
And now they have bitcoin to put their money into. That's a large part of what's driving the boom. And you know what? It'll keep going. If they're willing to invest billions in ghost cities they're willing to drive bitcoin above $10,000.
I'm not bold enough to claim that bitcoin is a bad investment, but to me it seems closer to gambling than investment. As long as it's money you're not afraid to lose, go for it. But for me there are too many uncertainties and I'm not willing to invest the time. There are so many other opportunities.
Imagine a country where 1 million extra housing units only represented 1/1300th of the housing needs for the nation. Imagine someone having built 625 extra apartments in SF.
China is trying to urbanize 300 million people, a ghost city here or there is a drop in the bucket.
And you know what? It'll keep going. If they're willing to invest billions in ghost cities they're willing to drive bitcoin above $10,000.
I think that is an unfounded conclusion. The ghost city phenomenon is a lot more than just "no other investment vehicles." The process of building ghost cities is ripe with corruption, everybody in the chain gets a cut of what is ultimately land-confiscation and government funded construction loans.
Straight out bitcoin speculation isn't even in the same league of opportunities for corruption.
Some of those ghost cities claims are false. Some claims of 'ghost-city' are using obsolete photos(, e.g. the Florentia Village in Wuqing, Tianjin was falsely labeled ghost shopping malls in an io9.com article where you can hardly find a parking lot available on holidays).
Those cities are getting more and more popular because more people migrated from rural areas to these new urban areas, the amount of migration is huge.
There was a news magazine article from the early 90s on how China was building highways yet no one had cars (besides the military and government). Every project starts empty, it's the next 25-50 years that count.
Speculation excluded, currency controls would be a good reason for a Chinese citizen to "invest" in bitcoin (and cash it out on USD at the other side.)
Fun fact: btcchina is trading at ~5400CNY/BTC right now, which is approximately $880 while the average on other exchanges is $700. Good day for arbitrage.
Good point. As I write this, BTC-China is at 5680 RMB, or 932 USD. Bitstamp is 655 USD, Gox is 776 USD.
Maybe China is driving the demand and other exchanges are arbitraging against China. Since there's a lag in transferring funds into exchanges, the 20% to 40% premium in China may just be a measure of latency in a fast-moving market.
If so, then we'll see the prices converge over time, and we should use BTC-China as a leading indicator of exchange rates.
FWIW, if you are seriously into arbitraging, you won't keep transferring funds between both exchanges to finish the cycle of buying-selling. What you will actually do is having half of your funds on both sites and execute both operations on both sites at the same time to have them match.
Yep, that's the only way to do it with zero risk. But since btcchina.com is consistently higher than the other top exchanges you'll eventually have to move CNY out of there and bitcoin in. Moving bitcoin there is trivial (which shows how great bitcoin is) but moving CNY out and converting it to USD for the other exchanges is trickier (need a Chinese bank account for example) so I would expect the lag in price to continue.
Exactly, that's the point I've raised in another comment. By the way, I've read that Bobby Lee (CEO @ BTCChina) is already dealing with Chinese authorities to see if he can expand the business out of China (read: accept €/$). Can't wait to see this happen as well as seeing Litecoin integrated there.
I have noticed that this is happenning with other Chinese exchanges such as OKcoin and FXBTC as well. There must be a reason why this arbitrage exists. It's probably the difficulty to close the loop between cashing out in RMB and funding your account on Bitstamp with €/$.
Meanwhile the safest way to do arbitrage is between BTC-E and Bitstamp because they both have low fees for SEPA deposits/withdrawals. Must be European though.
His slant seems pretty obvious... Even if he ends up being wrong the logic is self evident. Communist China is a totalitarian state, Communist China crushed another virtual currency that caught on a couple years back, therefore if the raise from ~$100 a bitcoin to ~$600 is due to chinese involvement you probably should assume its gonna go back to ~$100 as soon as the communist government flexes its muscles.
Chinese state television is one of the promoters of Bitcoin. From May: "At the end of last week China Central Television, a state-run broadcaster, aired a documentary offering an overview of bitcoin and its potential benefits. Given the tight controls the Chinese government has over mainland media, this was not just tacit approval from the world’s second largest and centrally-run economy..."
The chinese govt has plenty of engineers and plenty of IC fabs. They are in the best position, even more so than the US govt, to execute the 51% attack.
Much of the world is trying to get away from the USD as a global "reserve" and trade-settlement currency, without the masses jumping into gold and without pissing of the US (govt, economy, Wall St).
Bitcoin is so much more "tolerated" by Germany and China than it is by the UK and the US, it's pretty obvious.
You don't really want the masses to rush into gold -- it needs to stay cheap so oil can stay cheap for whole economies, and central banks can acquire more of it for a future when intra-national trade imbalances may be settled in a proven, timeless, globally-accepted (at the central bank level) reserve asset that's not subjected to any one nation-state's (or state union's) wims or woes. You also don't want the savers to store their excess savings or retirement funds in USD or even your own currencies, because they'll be screwed over. You also don't want all the excess liquidity printed over the last 5ish years to end up as real-world price inflation on store shelves. Something like Bitcoin solves all these beautifully, and carries no diplomatic concerns because it's something that citizens are now just free to adopt as they see fit.
You think the Chinese want USD long-term? Why on earth would they? They wanna convert them into other wealth assets, even BTC if they like, asap. Think about the situation today or more so the last decade or three: they export something, take in USD. The producer takes those to their bank to convert into spendable yuan. Their bank takes those to the central bank for yuan. Their central bank doesn't wanna sit on them either so (traditionally) they buy treasuries for those USD, which sends the USD back home to the US where Americans go on the next shopping spree of buying Chinese (in our example) goods (circle repeats), and when the treasury is due, freshly printed USD plus a small interest "gain" go to China central bank and they're left holding the bag once again. What to do with those homeless USD? It's called reserve-currency privilegue and really the world would be happy to abandon it, but you can't just flip the switch or madness would ensue. Similar situation for the majority of producing-and-exporting countries.
Food for thought!