# How should I interpret (BTC/CNY) / (BTC/USD)?

So, I've been following bitcoin for a number of years now and I decided to look at how it plays with the dollar and the Chinese yuan. I'm wondering if someone can help me interpret the graph below. I have some background in physics but not much in economics.

So I understand that the green line ("USD/CNY") is the value of the dollar compared to the yuan in the global foreign exchange market. When it goes up, that means the value of the dollar has gone up for those buying with yuan.

The purple line is "BTC/CNY" divided by "BTC/USD", and here's where I'm interested in your help. I have a couple thoughts:

1. The lines both have the same units
2. The purple line represents the same thing as the green line EXCEPT that it's mediated by the bitcoin market instead of the global forex market
3. The purple line compares the value of bitcoin for buyers with yuan to the value of bitcoin for buyers with dollars; When the purple line is above the green line, bitcoin has a higher value to buyers with yuan than buyers with dollars.

Are those reasonable interpretations? Thanks in advance!

• So what's your actual question, then? "Am I missing anything?" isn't really a question suitable for this site - it sounds like you just want an open discussion, which is not what we do here. And the obvious, but unhelpful, answer to that question is "yes". So what is your specific question about economics? May 15 '17 at 3:12
• The question is still "how should I interpret BTC/CNY / BTC/USD". I've made an attempt at answering my own question (maybe I should have posted an answer), but I'm still looking for confirmation/explanations. May 15 '17 at 15:20
• Have you considered accepting an answer (any)? Aug 23 '17 at 12:09

Regarding your question before the update:

1) Yes, they have the same units ("how many units of CNY you need to buy one USD", either directly or through a bitcoin intermediary). That is the whole point of arbitrage.

2) It seems that "the global forex market" and "the bitcoin market" seem separate to you. If by the former you mean big investment banks, then maybe you are right, as there seem to be no indication that big investment banks are systematically engaging in Bitcoin trading (at least I found no evidence of it; please correct me if I'm wrong). However, there are tons of bitcoin-oriented banks and brokers doing transactions on currency pairs, and I'm not sure these should not be counted as part of the global forex market.

Having said this, I think the simplest interpretation of the lines is that of a currency pair, and that of the currency pair being arbitraged through bitcoin.

3) The green line refers to how many units of CNY you need to buy one unit of USD. Or equivalently, how many units of CNY you get for one unit of USD. If the purple line is above (below) the green line, then you can get more (less) units of CNY by (1) selling USD through bitcoin and (2) buying CNY with those bitcoins. This means your interpretation in the update is correct. If you have USD, sell them to BTC, and buy CNY (purple line), and then exchange these directly to USD. As the green line is below the purple one, you need less CNY to buy one USD, which is the same to say that you get more USD for the same amount of CNY.

So, there seem to be arbitrage opportunities, at least in a zero transaction cost market.

I confirmed my understanding by directly comparing to btccny and btcusd. I think gaps between the green and purple lines represent arbitrage opportunities.

When the purple line is above the green line, there's a corresponding increase in the value of bitcoin to buyers with yuan relative to buyers with usd. In this situation, theoretically you could buy bitcoin with usd (because it's cheaper), buy yuan with that bitcoin, and then buy usd with that yuan (on forex) and come out ahead.