Recently the People’s Bank of China cracked down on Chinese bitcoin exchanges. The end result being that the top bitcoin exchanges in the world no longer offer margin trading and a zero fee structure. Chinese exchanges such as Huobi, OKCoin and BTCChina are now introducing a 0.2% fixed-rate fee on all trades.
I believe this may have a positive effect on the price of bitcoin for several reasons:
#1: The Inability to Short
China has been a market mover for bitcoin price discovery and has led most of the major bull runs over the past couple of years. Although it’s possible that other countries like Japan will have a greater influence over the price, most traders are habituated to watching the Chinese charts. Even with a severe volume reduction China may still have influence over moving the price because old habits die hard and the markets aren’t always rational.
Chinese whales will have to devise entirely new trading strategies revolved around the spot markets. Without margin, traders in China can no longer borrow bitcoin to sell coins they don’t have. This means that the only way to profit off of bull runs is to actually buy and own bitcoin.
This also limits their flexibility in the market to buy and sell on the fly. Smart traders will need to find a middle path of keeping some bitcoin and cash so that they never get stuck on one side of the market.
#2: Real Volume is Better for Fundamentals
Chinese zero fee exchanges have been showing fake volume stats as a result of wash trading bots. This has made it difficult for traders to determine the real volume on breakouts and bull runs.
Having accurate trading volume stats will give everyone a better idea of the genuine demand for bitcoin in China. It will also help traders determine bullish momentum based on the volume of key level breakouts.
#3: Less Market Manipulation
Without margin trading it will be very difficult for large players and exchanges to manipulate the price. Leverage not only increases the size of trades, it can also be used for increased flexibility. Less trading fire power means it will take more money to push the price and hunt stop orders. Spot trading comes with less risk than margin, which means traders don’t have to run stops that are as tight.
If a whale still wants to have influence over the bitcoin markets they will need to increase their trading capital and start by purchasing more bitcoin. Also any Chinese trader who wants to trade on another exchange can only do so through buying bitcoin because of CNY capital controls. Any traders who are currently stuck holding CNY can only influence the price through buying.