3 exits for Chinese Bitcoin HFT traders with millions of funds
In the past few days, the transaction volume of big three took a nose dive. For instance, OKCoin had 3.7 million coins exchanged on 5th January and 4,329 on 19th Feb as per sosobtc . The “big three” are losing their most precious assets as an exchange: traders. According to a report on WSJ China , high frequency traders (HFT) are running away from Chinese market with millions of funds out of panic or the need to liquidate their funds. They found 3 outlets for their money.
Before the PBOC site inspection, it’s believed that the 80% of the exchanges transaction were initiated by HFT traders. It’s estimated 60% of the transaction in OKCoin was conducted by trading robots and 80% in BTCC and Huobi. As there was no need for HFT to consider the cost of transaction fee in the past, HFT may run their bots 24-7 to capture the smallest price difference between exchanges. After the adoption of 0.03-0.2% trading fees, traders tried to adjust strategy but the effort was futile. One HFT trader explained:
“A positive profit could only be realized with 0.2% fluctuation. Trading bots may initiate 30 transactions within 10 seconds. With the burden of transaction fee, it’s almost impossible to capture a profitable fluctuation within such a short timeframe.”
Under the regulatory pressure, HFT teams are leaving the exchanges with millions of funds. One HFT investor said:
We want to maintain a 4% income but it isn’t easy with 0.3% withdrawal fee and 0.2% transaction fee. The revenue graph looks ugly.
Where do they go?
There are several options: premium-taker, foreign futures exchange and OTC.
Price gap between various exchanges are still profitable. Some traders set up accounts across various exchanges, hedging around to realize positive gains. However,
“Such operation requires substantial amount of bitcoin and fiats.”
Pan Guoli, founder of biqushi, said. Pan offers market analysis and also in charge of hedging fund.
Also, these traders may opt to trade in foreign futures exchanges. Currently there are genuine overseas futures exchanges, or some less genuine exchanges that are actually registered abroad but operated domestically. 0 fee and are free from Chinese regulations are the major attractions.
Haipo Yang, founder of Viabtc, even developed a futures premium index based on OKCoin price:
The third exit is OTC trading.
However OTC is criticized for its simple or non-existent KYC procedure, which may allow money laundry or capital flight. OTC traders are looking for each other through mobile apps, social media tools, forum, website or offline meetup. Some major OTC dealers are hiring people to spam online. Wechat chatbot are being developed for OTC purpose. With the absence of exchange-like monitoring, OTC trading will be even harder to track.