The slump in Bitcoin prices at the end of 2014 came at the same time as the Chinese stock market recovered. It might be not a simple coincidence.
The author of an article published by Quartz concludes that the oscillations in the price of bitcoin in 2013–2014 were speculative in nature and could perhaps be linked with the activities of Chinese bitcoin traders to a greater extent than is generally assumed. Indeed, the great surge of the cryptocurrency in late 2013, when Bitcoin jumped from $123 to well over $1,000, coincided in time with important changes in Chinese laws.
It was precisely in the last months of 2013 that real estate speculation began to decline in China thanks to the threat (ultimately carried out) of higher property taxes. The rising Chinese middle class, which, according to the author, “has relatively few asset classes to invest in”, could decide to buy bitcoins, pushing its price upwards. However, the price stopped growing after December 5th, 2013, when China passed a law barring financial institutions from using Bitcoin.
After this, bitcoins became less popular as an investment in China. Still, throughout 2014, bitcoin mining continued which meant a steady growth in supply without any increase in demand. Finally, the last six weeks of 2014 saw a recovery of the Chinese stock market. And its growth correlated with the decline of bitcoin: the Shanghai Composite grew 30% while bitcoin fell 27%. The author suggests that the speculators’ money might flow from bitcoin into Chinese stocks.
He further expresses the hope that less speculation in bitcoin might make it more attractive to those who seek a stable and reliable currency. Still, there is a danger that venture capitalists and other major investors might be deterred from investing in bitcoin, which could slow down its development.