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Bitcoin, China, arbitrage and world class trading

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China placed restrictions last week on Bitcoin’s acceptance in the banking institutions which ended the arbitrage play, reports Reuters today.

Chinese Bitcoin chat rooms buzzed last month as investors noticed that the digital currency as sold on China's biggest exchange was more expensive, in dollar terms, than Bitcoins traded abroad using dollars, creating a tempting arbitrage play.

The international ping pong of Bitcoin began and could be tracked on various trading sites and the Fiatleak, the real time site, for Bitcoin trades around the world which updated every 10 minutes. You can visually view the trades via country.

Once China placed restrictions forbidding commercial banks from dealing in Bitcoin, it also contributed to the price decline on BTC (Bitcoin Chinese Exchange) China.

Early wave amateurs in arbitrage trading were flushed out with the China Central Bank announcement.

But analysts say the price convergence also reflects the rapid evolution of the Bitcoin market, which began with technology enthusiasts but quickly expanded to include those with the financial know-how to evade China's strict capital controls.

Recently, as Bitcoin has grown in popularity, more sophisticated arbitrageurs have stepped in. Early this month, Chinese media began reporting that investors from Wenzhou, the east coastal city known for its entrepreneurial and speculative zeal, were piling into Bitcoin.

There are other methods to take advantage of trading the spread on Bitcoin and that is through falsified invoices for goods and services. This was observed in November in China through unexpectedly strong export growth reignited suspicions that official data had been inflated by fake invoicing.

False invoicing in China resulted in illicit outflows worth $3.79 trillion between 2000 and 2011, according to a report last year by Global Financial Integrity, a think tank and advocacy group in Washington.

An arbitrage player, who identifies himself only as ‘King’ told Reuters that he used RChange, an online currency exchange and payment service based in the Seychelles, to exchange yuan for commercially-operated electronic currencies such as OKPay and EgoPay, which are accepted by several international Bitcoin exchanges. But because such currencies carry hefty charges, this method is only profitable when the Bitcoin spread is very wide. The pros at arbitrage play at this game.

The response to China controls comes from a Shanghai-based fixed income fund manager who dismissed capital controls as a barrier to shifting money around. ‘All of my clients have plenty of money offshore already,’ he said

The international ping pong of Bitcoin will show different locations around the world trading on the real time Fiatleak site but the players will be most likely Chinese.

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