Protestors in Hong Kong (Photo by Oscar Chan from Pexels).
Asia & Australia,  Bitcoin

Hong Kong’s Bitcoin spike: Foresight or fluke?

A tremendous jump in trade volume on a small Hong Kong P2P exchange was touted as proof that Bitcoin is the new gold. But it may have just been a whale’s splash

Bitcoin trades in Hong Kong saw a massive spike at the end of September—blowing past even the volumes seen at the height of the 2017 bubble—simultaneous to political unrest in the Chinese territory.    

With nearly $12.3 million HKD (equivalent to $1.5 million in USD) traded in the week ending September 28 according to charts on peer-to-peer trading site’s LocalBitcoins, it was hard not to see a connection with escalating protests, anti-Chinese bank sentiment, and vandalism that recently caused ATMs to run dry, and panic-buying reported at supermarkets on October 7.

It’s especially interesting considering the same Bitcoin (BTC) volume jump was seen, on a smaller scale, during the last three weeks of June. That followed the first public protest over a mainland criminal extradition bill that organizers claimed attracted more than a million marchers. 

What it meant, however, is less clear. For one thing, the P2P trading is a fraction of the volume actually traded in Hong Kong. Unlike China, where ICOs and cryptocurrency exchange trading are banned, Hong Kong’s Securities and Futures Commission (SFC) gave it the thumbs up on October 4.

In a 37-page document, the SFC issued rules for cryptocurrency fund managers, requiring them to maintain at least $3 million HKD at all times, set standards for securing funds, and required “anti-money laundering” (AML) and “counter-terrorist financing” (CFT) compliance. 

A way to opt out

One person who made the connection between unrest and that spike in volume was social trading platform eToro’s widely followed senior market analyst, Mati Greenspan.

“The demand for bitcoin in Hong Kong is at the highest levels ever recorded,” he wrote on October 2. 

Noting that protest leaders have called on Hong Kong residents to withdraw cash from Chinese banks, he said, “it seems that some of that cash is filtering into a new home, bitcoin.”

Greenspan qualified that by noting it is hard to identify the source of the trading, He added, however, that “spiking demand for BTC could be a sign that some Hong Kong protesters are seeing bitcoin as a way to opt-out of the local economy that is run by governments and financial institutions.”

Bitcoin maturing

This matches broader comments by Bloomberg Intelligence Analyst Mike McGlone, who in a September 5 research note compared Bitcoin to gold, which is a traditional haven in times of unrest.

Claiming that, “Bitcoin is maturing into a digital store-of-value akin to gold,” McGlone wrote that, “its parabolic rally days are over.”

Still, he noted that one of the factors keeping volatility down would be, “macroeconomic conditions similar to those aiding gold.” That, he added, “should keep bitcoin’s price buoyant.”

McGlone added, “in an increasingly digitized world, it’s logical to expect an independent, digital quasi-currency to gain value amid rapidly declining interest rates and values of traditional currencies.”

Just a whale tale

The Hong Kong price spoke makes a great narrative, especially with Bitcoin adoption growing in Venezuela as its economy continues to disintegrate. 

But the LocalBitcoins numbers for the week ending October 5 don’t really support it. The trade volume fell to just $2.9 million HKD from $12.3 million HKD the previous week.

Beyond that, Hong Kong trading volumes on LocalBitcoins dropped precipitously from July through September, even as the Hong Kong protests accelerated and the police response grew harsher and more violent. This despite the fact that Hong Kong Chief Executive Carrie Lam backed down. She called the extradition bill dead in July and formally withdrew it on September 4. 

From July through the third week of September, LocalBitcoin recorded trade volumes ranging between $1.9 million HKD and $3.7 million HKD. 

A plausible explanation is that it was a fluke. 

On October 4, Matt Ahlborg, a research fellow at VC-run blockchain accelerator dlab, said on Twitter that he’d been told most of the trading was done by one whale.

Citing a “a pro trader who claims they were the counterparty to most of this volume,” Ahlborg said he’d been told it was just someone “buying the dip” in Bitcoin’s price. It “was not related at all,” to political problems, he added. 

At the same time, Ahlborg noted that another person familiar with the Hong Kong OTC market said, “[a]nyone who claims that OTC volume in HK is not impacted by political issues is “not telling the whole truth.”

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.