The increased demand in China has caused an astonishing burst of bitcoin price – it soared to its highest in almost two years. Worries in China about a further weakening of the yuan resulted in bitcoin rising to more than $500 per unit.
Bitcoin is a digital currency that enables avoiding capital controls. People tend to turn to bitcoin in the period of tough times in economics as it allows to move money across the globe quickly and anonymously with no need for a central authority. What we are observing now is how Chinese savers strive to protect their money against a further devaluation of the yuan.
Such a significant influence from China is easily explained by the fact that around 95 percent of all bitcoin trading is done via Chinese exchanges. Thus, any increase in demand from one country has a great impact on bitcoin operating all over the world.
“People are worrying about the PBOC (People’s Bank of China) devaluing the yuan,” BTCC’s Bobby Lee said from Hong Kong. “If you’re in China and you’re holding onto that yuan, that’s a huge risk, so they’re buying into hard assets … Bitcoin is something that is very easily traded into, so that’s what’s happening.”
It is hard to deny that bitcoin is rather volatile currency. It rocketed above $1,100 in 2013. But in a year it fell to around $150. As Lee stated, the recent price of bitcoin had at one point exceeded 4,000 yuan, which is over $600, on his Chinese exchange. That was a sign investors sensed that the yuan was being artificially supported by the PBOC, he admitted.
The total value of bitcoin now makes up approximately $8.5 billion with almost 15.5 million bitcoins now in circulation. The price hits $548.50 on the Bitstamp exchange, the highest indicator since August 2014, leaving it up over 20 percent in the past week.
July 10 – Time to Halve the Supply
Experts offer one more explanation of the recent surge in bitcoin price. There are 40 days till the day when the number of new bitcoins that are added to the system every day will be halved. Following the rules of demand and supply, it gives reason to state that slower growth in supply should raise the value of the currency.
Reuters explains that bitcoin is not controlled by any central authority. Instead, it relies on “mining” computers that validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes. The first computer to succeed and solve the puzzle gets a reward of 25 new bitcoins, worth around $13,500.
The mysterious Satoshi Nakamoto, whose identity is still under the question, designed the code in such a way that the reward must be halved once in four years, in order to keep a lid on inflation. The next time to halve is July 10.
Charles Hayter, CEO of London-based digital currency analysis website CryptoCompare, said: “Bitcoin is days away from a reduction in its block reward, which will halve the daily supply coming onto the market. Bitcoin is emerging battle-hardened after a period of divisive governance issues and politics. Although not fully laid to rest, calmer waters look to be on the horizon as consensus on how to scale the network is appearing.”