China- something I'm not getting

slamdunk

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Due to recent rumblings from the People's Bank of China, we have seen the price of DASH/cryptocurrencies fall in dollar terms. The speculation is, Chinese citizens are using cryptocurrencies to move yuan out of the country. As the story goes, Chinese are converting yuan to cryptocurrency in China using Chinese exchanges, then converting cryptocurrrency to other fiat (USD?) outside of China.

If that were true, shouldn't that be a net zero in the price of cryptocurrencies? Doesn't rising cryptocurrency price imply that some portion is remaining in cryptocurrency? That not all is being converted to offshore fiat?
 

David

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Jun 21, 2014
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Due to recent rumblings from the People's Bank of China, we have seen the price of DASH/cryptocurrencies fall in dollar terms. The speculation is, Chinese citizens are using cryptocurrencies to move yuan out of the country. As the story goes, Chinese are converting yuan to cryptocurrency in China using Chinese exchanges, then converting cryptocurrrency to other fiat (USD?) outside of China.

If that were true, shouldn't that be a net zero in the price of cryptocurrencies? Doesn't rising cryptocurrency price imply that some portion is remaining in cryptocurrency? That not all is being converted to offshore fiat?
Yes it would. But you have to also figure that some percentage of people aren't converting back to fiat at the other end. Depending on how large a percentage on how much volume, the net effect is positive. It's like gift cards--merchants love when you buy gift cards, in part because of "breakage"--that some small percentage of people won't use them (or won't use all of them) and the company can book that as "gift card breakage" on their income statement.
 

moonknight

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The thing is no yuan actually ever leaves China this way. Unless they are mining, someone in China pays yuan in exchange for cryptocurrency to someone else (probably in China) which accepts yuan (which can only really be used in China) for it. Simplifying, when more people want to buy crypto than people want to sell, the price (in yuans) rises. The same goes for USD x crypto: if more people are selling crypto for USD, crypto prices (in USD) falls. When people buy crypto in China for yuans and sell abroad for USD, the tendency is for crypto price to rise in yuans and fall in dollars. The markets are not directly connected. Of course the Chinese can also sell crypto for euros. If they sell significantly more in dollars rather than euros, other people will have an incentive to buy bitcoins in dollars and sell in euros, thus equalizing the markets, since it is easy to exchange euros for dollars outside the crypto world. There is also the collective effect of other people trying to antecipate the moves the Chinese will make in order to profit... theory is simple, the hard part is figuring out how millions of people will act in response to each of theses situations.
 
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David

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Jun 21, 2014
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The thing is no yuan actually ever leaves China this way. Unless they are mining, someone in China pays yuan in exchange for cryptocurrency to someone else (probably in China) which accepts yuan (which can only really be used in China) for it. Simplifying, when more people want to buy crypto than people want to sell, the price (in yuans) rises. The same goes for USD x crypto: if more people are selling crypto for USD, crypto prices (in USD) falls. When people buy crypto in China for yuans and sell abroad for USD, the tendency is for crypto price to rise in yuans and fall in dollars. The markets are not directly connected. Of course the Chinese can also sell crypto for euros. If they sell significantly more in dollars rather than euros, other people will have an incentive to buy bitcoins in dollars and sell in euros, thus equalizing the markets, since it is easy to exchange euros for dollars outside the crypto world. There is also the collective effect of other people trying to antecipate the moves the Chinese will make in order to profit... theory is simple, the hard part is figuring out how millions of people will act in response to each of theses situations.
When the price in CNY rises, the price in dollars almost always follows. If China is leading a rally, then there is usually some lag time, but the price in all currencies rises. Just take a look at historical charts.

The issue isn't that yuan is leaving the country; it's that wealth is leaving the country. You're correct in that no yuan actually "leaves" China. If I'm not mistaken (and I might be!) what happens is that supply of yuan on the "market" increases while demand stays the same (or falls). Thus yuan is devalued.
 

moonknight

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When the price in CNY rises, the price in dollars almost always follows. If China is leading a rally, then there is usually some lag time, but the price in all currencies rises. Just take a look at historical charts.
There is probably some kind of arbitrage in play. Then, what probably happens is that, since there is more demand for bitcoins globally, it's price rises globally.

The issue isn't that yuan is leaving the country; it's that wealth is leaving the country. You're correct in that no yuan actually "leaves" China. If I'm not mistaken (and I might be!) what happens is that supply of yuan on the "market" increases while demand stays the same (or falls). Thus yuan is devalued.
I don't think that yuan would be devaluated because of that, given the tiny, tiny fraction of crypto marketcap in relation to yuan's or dollar's marketcap... it makes more sense to talk about crypto valuation in relation to fiat than the other way around.
 

fernando

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Yes it would. But you have to also figure that some percentage of people aren't converting back to fiat at the other end. Depending on how large a percentage on how much volume, the net effect is positive. It's like gift cards--merchants love when you buy gift cards, in part because of "breakage"--that some small percentage of people won't use them (or won't use all of them) and the company can book that as "gift card breakage" on their income statement.
I don't really buy into the it-is-all-China narrative, but assuming it was correct, you also need to consider time. All those movements take some time, so the head of the movement should increase prices (only people entering crypto but nobody exiting yet) and the tail decrease them (no more people entering and the last few exiting).
 

rustycase

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Apr 19, 2016
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The geo-political influence China exerts is staggering. Including the Cryptoverse.
China manufactures ALL the gear used in almost every level of digital communications, including crypto mining.
Chinese political control sets power rates to mining concerns.
China is actively involved in extensive global raw material exploitation, notably in the South China Sea, and has declared there would be significant ramifications if their intent there was compromised. This could mean almost anything from limiting shipment of hard goods and in-numerable products to trading partners, to clamping down on any one, or all Crypto use, easily done at the exchange level, by the PBOC, which undoubtedly would like to demand a percentage of the values exchanged.
I must admit, my comprehension of the magnitude of numbers associated with China is marginal.
Good luck with that ! :=)
rc