Every time 210,000 bitcoin blocks are mined, the value of mining
new bitcoins is cut in half. There’s only been one “halving”
since bitcoin was created eight years ago. It happened in
Another explanation is that blockchain, the technology at the heart of bitcoin, is gaining traction in a growing number of commercial applications, stoking investor interest.
Damaged 100 yuan banknotes are seen on a table at a branch of China Bank in Foshan, Guangdong province, June 5, 2013. A woman brought about 400,000 yuan ($65,200), which she had kept at home, to the bank for replacement after most of the notes were bitten by white ants. Her notes were exchanged for new ones but for 60,000 yuan ($9,780) which the bank assessed and declared to be unchangeable. Picture taken June 5, 2013. Reuters/Stringer
Keep in mind that China’s economy dwarfs the bitcoin market. Chinese financial deposits total over US$22 trillion. The country experienced capital outflows of US$45 billion in April alone, according to RBS (Royal Bank of Scotland). And by recent standards that’s considered moderate.
Still, the main reason for bitcoin’s price surge is even simpler: Good old-fashioned speculation.
If the yuan starts to freefall, it’s certainly plausible that bitcoin could blast as high as it did in 2013, which would be about a 50 percent gain from current levels.
Like dollars or yen, you can use bitcoin to buy goods and services. But, unlike paper currencies, which governments can create and print at will, no single entity controls the bitcoin network. Its mathematical rules limit the maximum number of bitcoin units to 21 million.
In February, we explained that bitcoin is “cryptocurreny,” or a form of digital money. It’s created and stored electronically through a blockchain database.
Read the original article on Truewealth Publishing. Sign up here to receive the Truewealth Asian Investment Daily, a free daily e-letter that will help you make better investment decisions, through independent and actionable insight on investing, finance and economics, in Asia and the world. Copyright 2016. Follow Truewealth Publishing on Twitter.
Investors in China are selling yuan-denominated assets in favour of other currencies, particularly the U.S. dollar. In 2015, Chinese citizens and corporations moved an estimated US$1 trillion in capital out of China. The capital flight has slowed this year. But renewed weakness in the yuan may reaccelerate it.
That said, the yuan is a much bigger player in this bitcoin rally. China’s currency has been weak in recent months. It’s down 6.1 percent against the dollar since August.
In recent months, speculation driven by Chinese money has resulted in short-lived bubbles in assets as diverse as iron ore, steel rebar, cotton, and eggs – as well as in bitcoin.
A network of “miners” digitally secures bitcoin transactions. When a miner completes the complex process of mining a block, he’s paid a fee – in bitcoin.
That’s more than a 9,000 percent gain.
All of these Chinese-driven speculations have the same basic lifeline. Whatever the explanation – lack of alternative investments, a deep-rooted gambling culture, investing naiveté, easy-money loans – each of these market booms played out the same way. Prices shot up in a speculative frenzy, and crashed once the mania faded.
Also, concerns over “Brexit” are adding to bitcoin demand. Some investors are worried about the financial fallout if the U.K. leaves the European Union. So they’re turning to bitcoin as a safe haven asset – treating it like a digital alternative to gold.
The price of bitcoin has jumped 42 percent since the beginning of June. It hasn’t been this high since early 2014. It’s moved from a total market capitalization of US$8.3 billion, to nearly US$12 billion. It’s unheard of for a currency – digital or otherwise – to skyrocket this quickly.
Miners expect the next halving to happen in July. This is one explanation for the recent price surge. Some investors see the imminent halving – which will cut the mining fee from 25 to 12.5 bitcoins – as a reduction in supply. That’s why they’re bullish on bitcoin.
Bitcoin is on a tear.
China has played a big part in this rally. As The Wall Street Journalrecently reported, two Chinese exchanges, Huobi and OKCoin, now collectively account for 92 percent of global trading in bitcoin.
The price of bitcoin is volatile. So there’s a risk it might change while the transaction is being processed, causing the investor to lose money. Otherwise, it’s a relatively simple way to skirt the rules.
If the yuan starts a correction in earnest, and just a portion of the fleeing capital flows into bitcoin, it’s anyone’s guess how high the price of bitcoin might fly.
China’s government wants this to stop. This is part of the reason why it prohibits individual citizens from moving more than US$50,000 per year out of the country. Even so, Chinese citizens have a variety of ways to bypass these capital controls – including bitcoin.
Nevertheless, buyer beware. When this bubble pops (as they all do), many speculators will wish they had never heard of bitcoin.
Bitcoin shows all the signs of another Chinese-driven financial bubble. That’s not to say the price of bitcoin won’t go higher. Bitcoin’s 2013 price surge, as shown above, is the stuff of legend. At the start of 2013, you could purchase a single bitcoin for around US$12. On November 29, you could sell that same single bitcoin for US$1,100.
Bitcoin is gaining popularity as a method to quietly and anonymously move money out of China. Basically, a Chinese investor can deposit yuan in a bitcoin account and exchange the bitcoin overseas for some other currency. Fees range from one to two percent.
Malta Gets Its First Bitcoin ATM, Unveils Blockchain Plans
Malta has received its first bitcoin ATM as the Maltese government unveils plans to make it the first country to embrace the blockchain.
According to a report from the Malta Chamber, the bitcoin AT
Bitcoin Price Recovers Past $2,500; Is $5,000 In Sight?
The bitcoin price recovered past $2,500 on Thursday, leading the markets to a moderate recovery after yesterday’s decline. Thirteen of the top 15 coins experienced price increases, and three of them s
True Flip Enters into a Strategic Partnership with DAO.Casino to Extend its Gaming Options
In a bid to improve user experience, True Flip has announced strategic partnership with DAO.Casino. True Flip, the provably fair international blockchain lottery, and DAO.Casino, the decentralized
Indian State Officials to Weigh Policies for Public Sector Blockchain Use
Officials in the Indian state of Karnataka are planning an event on blockchain and governance in the near future – a step that could ultimately lead to new regulations in the tech-oriented region.
Malta Intends to Legalize Use of Cryptocurrencies at Online Casinos
The government of Malta is advancing its plans to allow the legal use of digital currencies such as Bitcoin at online casinos. The Malta Gaming Authority (MGA), which supervises both land-based
HitBTC Confirms Bitcoin Cash Futures Trading, Will Credit User Accounts
HitBTC has joined the exchanges announcing its official stance towards the controversial new Bitcoin fork Bitcoin Cash (BCC). In comments to Cointelegraph before an official statement to users,
SEC ICO Guideline Will Affect Blockchain: Cornell University Professor
Cornell University Professor Emin Gun Sirer said that ICO guidelines issued by the US Securities and Exchange Commission (SEC) in late July 2017 will have a “chilling effect” on Blockchain technology
A New SegWit Lock-In Period Has Started and All Mining Pools Are Signaling
A new signaling period for the long-debated code change Segregated Witness (SegWit) just started — and it looks like it might be the last.
If at least 95% of blocks during the 2,016-block period si