China's flag and bitcoin
Asia & Australia,  Bitcoin

In light of China news, April Fools’ Bitcoin rally starts making sense

Once again, someone with a lot of access may have known something

Last week’s run-up in Bitcoin prices seemed like it would remain a mystery. Now comes word that China is contemplating a ban on mining and it all starts to make sense.

On Monday, China’s National Development and Reform Commission (NDRC) said it wanted public input on what to do with about 450 industries they are thinking of giving the boot. Bitcoin mining is one of them. NDRC is giving the masses until May 7 to have their say before making a decision. As China remains a communist country, it may be the equivalent of a condemned person saying his last words before sticking his neck out on the chopping block.

At least half of all Bitcoin mining takes place in China—sometimes as much of 70 percent of hash rate can come from there, taking advantage of the country’s relatively cheap electricity. Taking all those machines out of the equation could drastically increase the average energy costs of mining bitcoins and thus raise prices.

It’s helpful to remember how the April Fools’ rally began. An anonymous buyer placed orders to the tune of roughly 20,000 BTC—about $100 million in value—evenly split among three exchanges, Coinbase, Kraken, and Bitstamp. Interestingly, everything seemed to start during Asian trading hours, nighttime for the U.S. (Coinbase and Kraken are headquartered in San Francisco) and Europe (Bitstamp’s exchange is in London though it’s registerd in Luxembourg and has offices in New York).

When the order happened, a bunch of other buyer orders and stop-losses were triggered and it appeared a short squeeze was underway. Volume on BitMEX, a crypto derivatives exchange, soared and as much as $500 million worth of shorts were squeezed. In other words, short-sellers who had borrowed Bitcoin to sell short were forced to buy it back at a higher price in order to be able to return the assets to their original owners.

Was someone with lot of money and access tipped off on the NDRC’s list a week exactly before it went public? That’s unknown and may stay that way. The timing is definitely suspicious. But insider trading isn’t easy to define when it comes to Bitcoin and regulating it is just about impossible.

Then again, isn’t that the idea?

Lawrence Lewitinn, CFA is editor in chief of Modern Consensus. Disclosure: Lewitinn owns no cryptocurrencies in his portfolio.

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