A year ago, I was writing about the Chinese stock market (MEANWHILE IN CHINA), and its short and not-so-sweet little asset bubble:


Does anyone remember this gem:


Oh my word, yes – that time when I took financial advice from my hairdresser – that was a fun time.

Anyway, it seems that Chinese investors have moved on.

Here’s a new news article from Quartz: “China’s risk-loving mom and pop investors have abandoned local stock markets for bitcoin.” Here are the opening paragraphs:

China’s individual investors are known for their huge appetite for new assets. The government’s strict currency controls make it difficult for them to invest overseas, so their money has traditionally had to go somewhere inside the country’s borders. That’s why from property to copper to domain names to fish bladders, speculation fuels asset markets in China. 

Less than two years ago stocks were hot, and the benchmark Shanghai Composite Index doubled from June 2014 to June 2015. After the index tumbled last summer, though, there’s still no sign that investors are coming back to the casino-like bourses any time soon.

Where are they heading now? One word—bitcoin.

And in case the bitcoin fans out there think that this doesn’t really affect them, those paragraphs were followed by this line:

“Over 94% of bitcoin trading involved Chinese yuan in August”

Here are some graphs (find the originals here and here):



And here’s another graph that I found on data.bicoinity.org:


And in case you’re wondering: yes, okcoin and huobi are both Chinese bitcoin exchanges.

In other similarities to the stock-trading bubble, this:

Huang, 32, a father of two preschool kids from northeastern Shangdong province, who wished to be identified only by his surname, quit his job as a mechanic in February to become an at-home, full-time bitcoin trader.

“Why have you lost so much money in the stock market?” he says he asks his friends, trying to persuade them to invest in the digital currency. “Because it’s controlled by China’s policy.” Then he’ll explain that bitcoin is decentralized and can’t be controlled by any government. What’s more important, he said, is that “you can make money fast.”

A self-taught “digital currency expert,” Huang says his life is all about bitcoin except when “eating, sleeping, and doing housework.” Despite no previous trading experience, he claims to have tripled his investment in bitcoin, using half of his family’s savings, in the past six months. Because his wife is a full-time housewife, that’s the only source of family income right now.

Unfortunately, he’s wrong. China can, in fact, if it chooses, control Chinese bitcoin. Or at least, it can influence it enough to encourage the speculation to move elsewhere – while the corresponding burst drop in bitcoin demand can do the rest.

My view: it’s only a matter of time.

And then where will the world be?

Especially as the Bitcoin market is now walled off:

  1. On one side of the wall, there is 90% of the market where the real world value in those bitcoin-wallets came out of Chinese bank accounts; and
  2. On the other side of the wall, there is the 10% of the market who cannot access any Chinese money due to Chinese exchange controls.

While the market demand for bitcoin is high, there is probably enough cross-trading happening that it’s still relatively easy to cash in and cash out without coming up against Chinese exchange controls. But if that cross-trading dries up…


Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.