It's been a great start to the New Year for Kevin Sun. He raked in about 5 million yuan ($724,630) in the first days of January by shorting Bitcoin just before the price of the digital currency plunged up to 30 percent from a record high.
"Fantastic and interesting," the 27-year-old Beijing-based professional Bitcoin investor said of his experience in a phone interview with Shanghai Daily.
He sounded tired but elated, after getting only two or three hours of sleep a night in recent weeks as he monitored movements in the currency.
Sun began taking short contracts on "borrowed" Bitcoin when the price hit 8,800 yuan (US$1,275), just shy of an intraday peak of 8,895 yuan.
He's a core member of an independent Bitcoin investment team with assets of "several dozens of millions" of yuan. In his years of Bitcoin investment, Sun has made profits by buying low and selling high and also by short selling.
In finance, short sellers "borrow" a security, betting that the price will decline so the repayment can be made at a lower cost.
However, Bitcoin is a volatile investment. Its price gyrates wildly. China is the world's biggest trading market for the digital currency, which debuted in 2009. It's held electronically but not minted. It is traded in peer-to-peer systems that allow direct transactions between users with no real-world intermediaries such as central banks. It is traded around the clock seven days a week.
Bitcoin's use in commerce has been somewhat limited. It is accepted in the purchase of some Internet games and even pizza shops in the Silicon Valley. This year, Microsoft is promising to support Bitcoin calculation and page-making in its latest Excel software.
On January 5, the price of Bitcoin hit an intraday record of 8,895 yuan, a 15 percent surge in five trading days and more than triple its value a year earlier. That made it one of the most profitable investments in 2016, according to Huobi, China's top Bitcoin trading platform.
Comparatively, the Shanghai Composite stock index dropped 12 percent last year, while the price of a new home in Shanghai jumped 20 percent on average.
The yuan's depreciation and uncertainty about the global political and economy environment burnished investor interest in Bitcoin last month, according to Zhu Jiawei, chief operating officer of Huobi. At the time, he warned of short-term risk after such a rapid price hike.
Then Bitcoin plunged about 20 percent in the two trading days since January 6, one of the biggest two-day declines in two years. The drop occurred after China's central bank urged investors to take a more rational approach to the digital currency and the yuan soared.
Stay cautious of risks
Bitcoin prices showed "abnormal" fluctuations, the Shanghai head office of the People's Bank of China said in a notice. That prompted a meeting between monetary authorities and representatives of BTCC, a major Bitcoin trading platform in China.
The central bank and local regulators took on-site inspection in BTCC, on potential risks like money laundry and other BTCC services without necessary licenses, the central bank said yesterday.
The central bank autioned against potential risks in the platform's operations and asked it to conduct a "self-examination." The bank also reiterated that Bitcoin is not a recognized currency and cannot be circulated as real money.
"Too much media coverage and a flood of new investors caused the fluctuation," Sun said. "But the government and market response have still been moderate compared with 2013."
That year, Bitcoin's price hit 8,000 yuan and then plummeted to below 2,000 yuan in a short period.
The latest price gyrations and increased trading volumes have injected an air of caution in the virtual market.
On January 5, Huobi stopped Bitcoin trading services on its mobile application for several hours after the price dropped from 8,000 yuan to 6,000 yuan. That resulted in losses for some leveraged investors, Chinese media reported.
Huobi said the system "crash" was the result of a rush of new registered users. Compared with a year earlier, new registrants jumped 10-fold.
Government and trading firms are expected to offer investors more standardized and reliable services, which is good news in the long term. But investors always need to be on alert for the unexpected, said Sun.
Some professional investors have taken out Bitcoin futures to hedge risks and expand profit. Domestic trading platforms like Okcoin offer such services.
Bitcoin's price stood at 6,297 yuan on Tuesday, more than double a year earlier. That keeps the sheen of Bitcoin investment alive.
Sun started trading Bitcoin in 2013 with original investment of 30,000 yuan. Looking back to those days, when the price was 1,200 yuan, he calls himself a "lucky guy."