Two main factors appear to be at play.
After spending months in the $600 range, it shot from about $750 a month ago to $1,150 yesterday.
Burniske points out that the Chinese yuan had recently been devaluing, which tends to correlate with bitcoin strength, but that it rose 1% overnight.
“As a result, one of the notable things I saw is that Chinese bitcoin exchanges fell from trading at a premium over U.S. exchanges to actually trading at a discount, so there was a drop in demand on the Chinese exchanges,” says Burniske. Chinese bitcoin exchanges typically show higher prices for bitcoin than exchanges in other locations because of increased demand there.
“What happened overnight is the yuan strengthened,” says Chris Burniske, blockchain products lead at ARK Investment Management. China accounts for more than 95% of all trading in Bitcoin, so developments there have a large impact on the price. Another factor may be traders taking profits since $1,150 is in the range of bitcoin’s previous all-time highs.
Bitcoin’s price has been on a tear recently.
But that changed overnight as the price dropped about 22%, according to the CoinDesk Bitcoin Price Index. It's rebounded slightly and is now trading at around $975 as of press time.
“The fact that they’re at parity or at a discount shows the effect that the strengthening yuan has had on bitcoin markets,” he says.
The reason developments with China’s currency are correlated with bitcoin has to do with the Chinese government’s attempt to limit the flow of money out of the country. In response, many Chinese citizens, to get money out of China, have been buying bitcoin with renminbi and then selling bitcoin on another exchange for U.S. dollars or euro. “Chinese capital controls are a big part of what creates demand for Bitcoin,” says Gil Luria, director of research at Wedbush Securities.
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The long-term picture is still clearly positive for the most popular cryptocurrency, despite the recent volatile correction. The major trend channel is still in play, with