Zhou Shiotzu does not believe in Bitcoin. He says that the crypto currency will never replace traditional money, and considers the fanatics most of the supporters of the digital currency.
However, for Zhou, a 35-year-old high-speed trader from Beijing, bitcoin is too good to resist. His computer trades bitcoins 24 hours a day, seven days a week. Using orders executed with light speed, he gets profit from tiny price discrepancies when executing orders.
“Now is the golden age in Bitcoin market, because the market is not perfect,” says Zhou, a former IBM technology consultant whose firm, Fintech Blockchain Group, has launched a bitcoin hedge fund and a venture capital fund.
Forget about libertarians, speculative private investors and Chinese, who keep their savings in the crypto currency. The reality is that professionals are armed with the latest technology, and they account for 80 percent of the bitcoins trades, and they imitate the strategies of the largest players of Wall Street. For them, bitcoin became the last class of assets won by machine trade.
The market structure of the crypto currency provides them with all the conditions: arbitrage opportunities between different exchanges, zero transaction costs of Chinese exchanges accounting for the bulk of the digital currency turnover, and the possibility of placing the servers of the participants directly on the exchange under a contract with it. With volumes that, according to Bitcoinity.org, have reached a record this month, high-speed traders enjoy excellent conditions for making a profit.
It is difficult to accurately assess the volume of their operations, because traders prefer not to disclose their income (Zhou also refused to talk about them). Chinese banks are forbidden , starting in 2013, to trade bitcoin, and capital controlled by foreign firms has little impact on Chinese exchanges.
One of the few traders willing to tell about their profits was Chen Zenguo, who founded the largest in China platform for automatic trading bitcoins. Chen said that he received an income of 50 percent per annum on his account, rejecting the request of Bloomberg News to provide more detailed information, saying that this is private information.
“When it comes to automated trading, Bitcoin has tangible advantages,” says 30-year-old Chen, whose Beijing company BotVS allows customers to trade on a proprietary algorithm on 23 exchanges. The Crypto currency increased by 6.9 percent, to $ 890.77 at 10:18 am London time.
Like any other market, the market of bitcoins is associated with risk. At least two exchanges, Bitfinex and Mt. Gox, suffered attacks by hackers, who in 2011 robbed traders of digital currency. The extreme jumps in the prices of crypto-currencies – the average daily movements of which were three times greater than those of the stocks included in the S & P 500 index – brought profits to high-speed traders, who so far prefer not to think about how long the juiciest arbitration opportunities will last.
There is also growing concern about the possible use of regulatory measures in China, where authorities fear any investment mechanism that could help citizens move wealth abroad. The central bank of the country conducted spot checks of some of the largest bitcoin exchanges this month in search of such serious violations in China as market manipulation and money laundering. Similar measures in 2015 to combat the abuse of futures on the stock market led to the fact that the volume of trading in futures fell by 99 percent.
However, politicians can decide that the bitcoin market is too small to interfere with it. At the moment, Bitcoin’s market valuation is about $ 13.5 billion, which is not comparable to the trading volume of Chinese stocks, $ 6.5 trillion.
Instead of injecting money from the country, most of those who use automated trading in Kittay are focused on arbitration between local exchanges. This is the opinion of Arthur Hayes, former market maker of Citigroup Inc., who now created BitMEX, to trade derivatives for bitcoins in Hong Kong. He makes several transactions per second, reacting to price changes caused by the actions of private investors and other speculators, who often use figures of technical analysis to make decisions about buying or selling, Hayes says.
“I’ll just leave”
OkCoin, one of the three largest Chinese exchanges Bitcoin, shows data that 60 percent of their transactions are for automatic trading, while for Huobi and BTC China this figure is about 80 percent.
In China there are 10 large enterprises associated with bitcoin, including three exchanges, which account for the majority of transactions in the world. We were told about it by Neil Woodfin, the operating director of Remitsy, a payment system for transferring money across borders. Instead of taking commissions for the execution of orders, the Chinese exchanges make money, charging a large commission for withdrawing funds from the account; they also offer server hosting services on the stock exchange and margin trading.
Zhou of Fintech Blockchain, who sees greater potential in the technology of the distributed registry underlying Bitcoin than in the crypto currency itself, says he can not predict how the market will behave in the next few years, since the digital currency is still too young and strongly depends on the opinion of Chinese regulators. In the meantime, he plans to continue trading.
“If the market exists, and I see a chance to make money, then I do it,” says Jou. “If there is no market, I’m just leaving.”