Image by BYC Keychain
The price of Bitcoin hit a two-year high on Monday, climbing above US$700 briefly before falling slightly. This latest spike mirrors the spike we saw in late May, and like that spike it seems to have been driven largely by demand from Chinese buyers.
The chart below, which comes from Cryptocompare, shows the two price spikes we’ve seen over the past month, with Bitcoin climbing strongly against China’s RMB.
Analysts say there are two fundamental reasons behind the spike. The first is demand in China, which is being driven by the weak yuan. As Chinese investors look to move their money outside the country, Bitcoin is an easy and obvious choice.
Bitcoin isn’t illegal in China, but exchanges operate in a legal gray area.
The other reason is a change to Bitcoin itself. The process of mining is set to become less rewarding again next month as the currency creeps closer to its maximum release limit (no more than 21 million coins will ever be released), and that upcoming change is expected to have sparked an increase in interest in the currency.
Still, China seems to be playing the largest role. The head of BTCC, one of China’s biggest exchanges, told CNBC that he was seeing “very high trading volumes.” Other major Chinese exchanges like Huobi and OKCoin have also seen spikes in trading similar to those seen during late May’s spike.
Bitcoin isn’t illegal in China, but it isn’t fully recognized and regulated either. Exchanges in the country operate in a bit of a gray area – buyers wire money to the exchange, which then gives them Bitcoin at an agreed rate. Because wiring your money to a Bitcoin exchange is technically a domestic transaction, those purchases are out of the grasp of China’s strict currency regulations.
Additional reporting by Erik Crouch.
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