[rudiger]

At its core, the current cryptocurrency craze is simply an unprecedented wealth transfer to China from the rest of the world.

Until the end of 2013, Bitcoin was predominantly traded for US dollars. However, after the crash of 2013, miners consolidated in China and Bitcoin mostly traded for Chinese yuan[1]. At the start of 2017, regulators in China cracked down on digital currency exchanges[2] and trading quickly moved to Japanese yen and, more recently, South Korean won[3].

All of the early buyers are selling. This won't end well.

[1]: http://www.businessinsider.com/bitcoin-trading-china-yuan-re...

[2]: http://fortune.com/2017/01/05/bitcoin-plunge-china-currency/

[3]: https://www.bloomberg.com/graphics/2017-bitcoin-volume/

[scottnyc]

I agree that this might be a wealth transfer to China. Bitcoin inherently does not hold any value, it is a ledger. When someone buys bitcoin, someone else sells it and takes the cash out of the system.

Right now, a lot of mining is still taking place in China since energy is cheap. These miners sell their coins outside of China and bring cash back into the mainland to pay for the energy and hardware used for mining. So in it's most simplistic form, when you buy a bitcoin, you are adding to the earnings of Chinese energy companies and hardware companies (and some naturally goes to speculators and miner margins).

[alistproducer2]

That's an interesting statement. I've never thought of it that way. In essence, Chinese miners are exporting subsidized Chinese energy (via mined coins) for foreign currencies. Sounds very much the M.O of Chinese trade practices (not meant to be overly negative, I'm just saying).

[petre]

Other communist states were/are doing the same: exporting a product of their captive workforce for foreign hard currency. For instance Uzbekistan is exporting cotton picked up by school students which are essentialy a slave work force. China is just a bit more "liberal" in this regard.

[mevile]

No, bitcoin is not subsidizing Chinese energy. They're paying for the energy being used at the price it costs to use it. I imagine the amount of energy used to mine in China is not a significant fraction of the overall energy production of China.

[drawnwren]

I think you got the causality backwards in the parent comment. China is subsidizing energy and, indirectly, Bitcoin. The parent assumes the price of energy in China is below cost. I'm not sure, but I wouldn't be surprised to learn this was true.

[aoeusnth1]

It's certainly below cost when you include the externalities of burning coal.

[passwordreset]

> Bitcoin inherently does not hold any value, it is a ledger.

I just want you to be aware that those 2 sentiments are directly contradictory. A ledger has value -- an online, world-wide, decentralized, distributed, peer-to-peer ledger moreso. Estimate the value of the ledger (this is a significantly different endeavour than estimating market cap), divide that value by the total number of BTC in circulation, and you have estimated the value of a BTC.

[root_axis]

> A ledger has value

Why? Based on what? That's like saying "a state machine has value". That might be true in some contexts, but an arbitrary implementation of a concept is not necessarily valuable. Certainly, the value prospect of the ledger has no relationship to how many cryptotokens the ledger accounts to one's balance (that is to say, buying up cryptotokens is purely speculative because owning more does not make the ledger more useful)

[AgentME]

A ledger that me and another entity (such as a friend I owe money to or a retailer I want to buy from) can both agree on to use to accomplish transactions is pretty handy.

[anonymous5133]

Banks are just giant ledgers as well and theyre worth trillions. Seems like ledgers are valuable indeed.

[jacobreg]

Banks also have money, I think that helps a bit...

[lurker456]

their direct possessions (money, real estate, license, ...) are much smaller then their total value. fractional reserve banking and all that. A significant fraction of their value comes from their reputation (to have an incorruptible ledger), ability to transact and Branding. bitcoin has those as well.

[scottnyc]

I see what you're saying, and that's an interesting way of thinking about the intrinsic value of Bitcoin. I suppose in estimating the value of the ledger you should also consider the negative value contributions to having this particular ledger, such as environmental impact, potential to destabilize governments, expected loss from hacking/user error, etc and see whether that outweighs the benefits of what some may perceive to be positive value.

I suppose what I meant to say is there is technically no money sitting somewhere held for owners of bitcoin to lay claim to.

[marshray]

Unless it is good at ledging things other than Bitcoin itself, your argument that the Bitcoin ledger has inherent value is completely circular.

[DennisP]

The dollar just ledges itself, since it's not backed by gold anymore. Most dollars are just entries in a database somewhere (and I would argue that paper dollars are really a distributed kind of ledger too).

Some people claim the dollar has value because the government accepts it for taxes, but the IMF's SDRs function as currency (within an exclusive population), aren't backed by anything, aren't accepted for taxes by anyone, and are worth $300 billion.

[zeep]

So if you buy a bitcoin for $15K, and sell it for $16K, you are taking wealth away from the Chinese?

[bookmarkacc]

No because you buy for 15k from them and sell for 16k to someone somewhere else in the world

[zeep]

Can we filter out sellers/buyers by country, to make sure?

[45h34jh53k4j]

No and by design. Global trade is global, man.

[pjc50]

I thought a lot of it was capital flight - Chinese nationals moving yuan out of the country, but to USD assets under their control, rather than an actual influx of wealth to China.

After all, we have no real idea of "where" the bitcoin is held, if that means anything at all.

[runeks]

You seem to be confusing volume with liquidity. The question is not how many times a bitcoin (allegedly) changes hands on an exchange, but how many USD/CNY/JPY etc. are bidding on bitcoins right now.

Why wouldn’t the CNY/JPY/KRW markets have much higher volume when they have zero trading fees?

The magnitude of an exchange is measured by how many funds they have on deposit, not how often these deposits change owner according to the exchange’s internal database.

[seanmcdirmid]

I think you meant from china to the rest of the world. The opposite direction isn’t very difficult to achieve via FDI or a simple bank transfer.

[nine_k]

I'd suppose both flows exist.

* Chinese energy producers and miners get cash into China from bitcoins they create and sell.

* Chinese (early) buyers of bitcoin sell their coins in the West for cash stored in Western banks, or turned into other Western assets.

I suppose the second stream is wider, but the first is not to be neglected, too.

[seanmcdirmid]

They don’t need bitcoin for the first stream, just for the second. Besides, there is plenty of excess capital floating around in china anyways, they don’t need many initial investment from the outside.

[nine_k]

People who mine bitcoins just make a living.

The outflow of the capital from China via bitcoin must definitely be larger than inflow. And those who transfer wealth from China via bitcoin are keenly interested in bitcoin growing as much as possible without crashing. They likely have bought a lot for a much lower price, and want to cash out in the West, at least partially, without trouble.

[neuro_imager]

You know you're citing articles that are almost a year old?

Please also provide evidence that "all of the early buyers are selling".

[rudiger]

Yes, I'm aware that an article from January 2017 has data backing up an assertion about global Bitcoin trading volume from 2012 to 2017. What is your point?

[neuro_imager]

Well, for one, drawing conclusions about the market circa market cap of 15B is very different to assessing it now at 275B.

[setecgastronomy]

> At its core, the current cryptocurrency craze is simply an unprecedented wealth transfer to China from the rest of the world.

Actually it's a wealth transfer from china to the US. The chinese are using bitcoins as a means to evade CCP capital controls.

There's a reason why china cracked down on bitcoin. Do you think china would stop wealth transfer to china? Of course not. They are trying to stop wealth transfer from china to the US.

[petre]

Not only to the US, to the rest of the world. Chinese money is also being parked in real estate in Australia, NZ, Switzerland, the UK etc.