What Drives the Recent Bitcoin Price Surge？
Bitcoin price has become the limelight in for all Chinese financial media(see article) in the past week as it has surged to over RMB 6400 (around 920 USD), according to OKcoin, a Chinese bitcoin trading platform. Bitcoin has actually been up by 91% from January 2016 to now. The price of 920 USD is the highest for Bitcoin in recent 3 years, making the total book value of bitcoin reach a record high of USD 14 billion.
We now probe into the factors that have contributed to the surge the price in recent month or even in this year.
Internationally, the Brexit referendum has caused worries about UK’s financial stability and Eurozone’s stability. Bitcoin’s price has seen its fastest going-up before June 23 Brexit vote among the fears that UK might leave EU. Bitcoin and gold all became the means for people to hedge risks, though gold price at that time went up much faster than bitcoin.
Recent India’s decision last month to relinquish its 500 and 1000 rupee notes in an attempt to combat corruption has greatly boosted the attraction of Bitcoin to Indian people. With growing number of middle class and huge user base of remittance market, India naturally become another important base for bitcoin transaction, forming a factor to boost Bitcoin price.
However, as Bitcoin transactions in China account for 90% of global amount, what happened in China should be the powerhouse of the surge especially in recent month. The fact that Bitcoin’s yuan price is higher than the simultaneous dollar price is just a proof.
First, Bitcoin’s gains are coinciding with a China’s weakening Yuan. Though the first choice in the past when Yuan depreciates is gold, reports that China is tightening gold import to curb capital outflow has made even gold not the ideal tool to hedge risks. The declines of yuan’ value and the diminishing position of gold as a risk-hedging tool in China both make Bitcoin conspicuous for its ability to prevent instant policy adjustment by the government. Bitcoin for more Chinese becomes an important way, though not quite familiar compared to other ways to allocate assets.
Baidu Trend of Blockchain: 2016 is the starting year for Chinese to figure out Blockchain
Second, the intensive funding stories for China’s Blockchain technology start-ups have greatly boosted people’s interests to learn about Blockchain and thus Bitcoin. For most of the time since the inception of Bitcoin network, Chinese ordinary people see bitcoin as Ponzi’s Scheme until recently. China’s Gingkoo, a Shanghai-based Blockchain company has just raised 23 million USD via private placement from Zhongnan Construction, an A share listed company. The news is just a blockbuster among reports that China BAT (Baidu, Alibaba and Tencent) all made efforts in Blockchain technology. Though there might be hypes in the process, people and capital increasingly gravitate towards Blockchain and Bitcoin.
Baidu index of Bitcoin since 2011. 2016 is not hot year compared with 2013
Rumor says money of Pyramid Scheme like MMM may also contribute to the price. But considering the facts the Chinese transactions account for 90% of world total and that the MMM is still far from widespread in China( its google trend and Baidu trend are all low recently), MMM is hardly the main factor of the recent Bitcoin price surge.
It’s worth noting that, though Chinese become more familiar with Bitcoin, the participation cannot be compared with that during the Bitcoin mania in 2013 when astronomical surge of Bitcoin price led to Baidu index of Bitcoin peaking at the highest point, proving the incredible price volatility’s attraction to Chinese speculators back then. In contrast to that time, Baidu index of Bitcoin in recent month, hasn’t increased to much recently.
To conclude, Chinese dominate the global price surge this time. They are mostly the existing users (private investors or agencies) with refueled passion caused by internal capital-control policies and international unstable monetary situation. The Bitcoin trading still remains a “buy on rumor and sell on news” thing with speculative sentiment. There is still a long way to go before people of China and world to fully recognize the value of Bitcoin and thus to drive up its price.