What’s this Crash Coming on January 31st We Keep Hearing About?

Chat rooms and forums are abuzz about the great collapse coming January 31. What is it? More importantly, will it

Chat rooms and forums are abuzz about the great collapse coming January 31. What is it? More importantly, will it affect me? And what about Bitcoin?

China and WMP’s

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On January 31st, a huge WMP (wealth management product. Not WMD, but perhaps getting close) from China Credit Trust Co. is set to mature for its clients. Forbes reports that the company warned that investors may not get repaid.

January 31 is the Chinese new year, this year being the Year of the Horse.

The People's Bank of China
The People’s Bank of China

Some analysts are writing off the development as a non-issue. They explain that Chinese authorities are seeking to teach a lesson to investors about the risks of such products, and this sacrifice will actually benefit the market in the long run. They will ensure that any default remains self-contained and should not threaten the broader financial system (i.e. no bailout).

In addition, the company may be able to repay a portion of the investments.

The more pessimist view points to the odd fact that China has not officially reported an annual contraction in GDP since 1976, indicating obvious tampering for years on end. Obviously, the bubble will burst eventually, even if not this time around.

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What does this have to do with Bitcoin, you ask? Some of those believing in an impending catastrophe see a flood of money flowing into BTC, the newest safe-haven from the Yuan (notwithstanding the technical issue of how authorities will let this happen). According to this theory, prices are set to explode.

China and Bitcoin

Here’s where it gets interesting. Chinese authorities last month forbade third party processing of bitcoins and banned financial institutions from dealing with Bitcoin- effective January 31.

The fast-approaching deadline has some calling for a doomsday scenario; all activity in bitcoin will come to an abrupt end in the world’s busiest bitcoin market, followed by a crash in prices.

If the bitcoin market has any iota of efficiency, which it certainly does, market participants should already be dumping the cryptocurrency in advance of doomsday, not before. Precisely, it should have gotten dumped immediately proceeding the announcement, which it did. But then it recovered.

More plausible is a relief rally gathering steam on and shortly after the dooms-date when traders finally realize that the sky hasn’t fallen.

Equally plausible is a very quiet day, the kind we’ve been having for the better part of 6 weeks when this news was already known and participants have already been dealing with it.

If a crash is coming, it’s not in Bitcoin.

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