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Tuesday, 07 February 2017 15:19

Revisiting the Breakdown of the Macro Drivers Behind Bitcoin's Price Spike, Exactly As I Foretold 30 Day Ago Featured

One month ago I walked through the macro influences behind Bitcoin's price pop and drop in "The Macro Truth About The Big Bitcoin Pop and Drop: The Mainstream Media Doesn't Have A Clue". Well, we're close to the peak again at $1,157.77 per coin, and the macro scene still holds a lot of explanation....

BTC 2 7 17

The PBOC has been expending an unprecedented amount of resources in the form of it's FX reserves in an attempt to support the Renminbi (this article assumes you've read "The Macro Truth About The Bitcoin" article, if you haven't its a prerequisite). The initial deployment of this capital to force CNY onshore caused violent capital repatriation. The result was rapid drop in BTC, as those who used CNY to purchase it were put in a predicament where CNY was too expensive to hold offshore. Long story, short, the PBOC succeeded in its goals short term. But... and there is always a but, did so at a cost. The amount of capital being deployed to manipulate the markets is quite significant, and it is now showing - exactly as I anticipated 30 days. ago - to wit:

The problem is, when you have to go to such extreme measures to draw currency back into the country, it becomes quite obvious to the prudent speculator that... 

$CNY #Yuan leaking from China into $BTC #blockchain, nearly $20M per hour, showing power of public blockchain & #Bitcoin in capital controls pic.twitter.com/T3mxP6OEkb

— ReggieMiddleton (@ReggieMiddleton) January 3, 2017

Seeing is believing... 

2017 promises to be a tumultous year of geopolitical uncertainty and macro risk. This is an environment in which Bitcoin thrives. 

 China's remnimbi has finally received reserve currency status, but with said status comes certain responsbilities that is running counter to the controlling methods China has employed in the past. Oh no! It's.... the Trilemma!

 

 

 Mucho yuan fiat was leaking (gushing?) into the bitcoin blockchain. Bitcoin's blockchain is already a global, anitfragile, counterparty risk-free P2P value exchange. This is what our technology, Veritaseum, is built upon.

 Here, I warned that the Chinese government would likely step in. Quite the prescient comment, since lo and hehold several days later... 

Chinese Regulators Exploring Bitcoin Connection to Capital Flight, and then we got China to Restrict Bitcoin Marketing, But Blockchain Firms Unaffected. Again, I was right on point!Restrict Bitcoin Marketing, But Blockchain Firms Unaffected

 As I've been warnng, think tanks and research firms interviewed by Bloomberg agree.

 Reference my notes above...

 This is something you dont' see in the mainstream media or most research notes. If China doesn't completely shut down bitcoin AND get the cooperation of other major offshore centers, any half assed attempt will simply increase the draw to bitcoin due to its very unique properties. China can actually usher in the P2P economy, by mistake. Reference The Onramp to Peer-to-Peer Capital Markets...

 Uh huh...

 Again, I reiterate the significant and material macro component in Bitcoin adoption, use and pricing...

This is the point, chronologically, where I warned about the BTC pullback... 

 

For those (apparently the majority of the punditry who choose to opine) who don't know what Bitcoin is.... 

 

 

BTC 1 7 17 picsay

Even with the pullback and (now, 15%) drop, Bitcoin has performed very well.... 

I've seen reports on the ground in China that way capital control avoidance was not a major contributor to Bitcoin activity. Well, the evidence that I've found says otherwise. 

 

Here comes the benefit of doing macro analysis. It all fits in... 

 China is painting itself into a corner with thier old school policies on capital controls... The amount of money they are spending is stupendous. The problems is, no matter how much they spend, the fundamentals are still going to be the fundamentals.

Of course, in the short run, their brute force methodology is working as yuan spikes and availability offshore dwindles. 

Here you go... 

I suppose a little strongarming doesn't hurt, no? 

The problem is, when you have to go to such extreme measures to draw currency back into the country, it becomse quite obvious to the prudent speculator that... 

Like I said earlier it will obviously work for the short run, but in the medium term, look out below! 

The Chinse are painting themselves into a tight corner, and telegraphing it to boot.

 

 

This is probably the most important tweet of the series. The FUNDAMENTALS HAVE NOT CHANGED!!! No matter how much money China spends, or how draconian they decide to become to trap capital, it's all about the fundamentals, silly! 

 thumb Chinas foreign reserves drop

 This is the Trilemma in effect!

 

We've seen this movie a few decades before. Remember when the Band of England was determined to join the EMU by any means necessary? They said they would defend the pound no matter what, foolishly and simultanesouly telegrpaphing the promise to feed trades from macro funds such as Soros & Co. all day long. So guess what? That's exactly what happened until the BOE tapped out, permanently pushed out of the EMU. As it turned out, that was actually a good thing for the Brits, but that's a story for another time. If you really must here the reason, view...

 thumb Soros breaking BOE

And now, China is paying the piper, exactly as I have foretold, Bank of England style when Soros manipulated their folly. Reference Reuters - China FX reserves fall $99.5 bln in Jan:

Feb 7 China's foreign exchange reserves, the world's largest, fell by $99.5 billion in January, the central bank said in a statement on Sunday. Foreign reserves fell to $3.23 trillion at the of January, the lowest level since May 2012. The figure was higher than a Reuters poll forecast of $3.20 trillion. China's gold reserves rose to $63.57 billion at the end of January, from $60.19 billion at the end of 2015, the People's Bank of China said on its website. Gold volume stood at 57.18 million fine troy ounces at the end of January, up from 56.66 million fine troy ounces in December. China's International Monetary Fund (IMF) reserve position was at $3.76 billion at the end of January, down from $4.55 billion in the previous month. The bank held $10.27 billion of IMF Special Drawing Rights at the end of last month, compared with $10.28 billion at the end of 2015. 

This is what that looks like graphically...

PBOC fx reserves

And just as BTC got whacked when the offshore CNY liquidity got tight, the visibility that China may not be able to keep this up for long loosened the reigns - just as I told you exactly 30 days ago...

btccny

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Last modified on Tuesday, 07 February 2017 16:18
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