Chinese Investors Fueling Bitcoin Price Jump, Wall Street Journal Reports

June 1, 2016 08:34 UTC

The 16% jump in bitcoin’s price in the past four days has largely been driven by Chinese investors, according to The Wall Street Journal, despite government efforts to curb bitcoin trading.

The surge, which pushed bitcoin to $525.49 on Monday, has added $1.2 billion in market capitalization. The surge is also credited to the expected drop in bitcoin supply next month due to an expected cap on bitcoin supply.

OkCoin and Huobi, Chinese bitcoin exchanges, collectively account for 92% of world bitcoin trading.

In Search Of New Assets

Chinese investment could reflect a move away from certain asset classes in search of better returns, the article noted. There has been massive investment in bonds, equities and commodities in the past year. Surges in investing have been followed by price collapses when funds move to other assets.

Du Jin, chief marketing officer at Huobi, said funds are presently in search of investment vehicles. The exchange has experienced a growth in new registrants in the past month, he said.

There is also an expectation that a new supply of bitcoin will subside next month that could also be fueling the current price surge. A mechanism (known as “halving”) cuts the number of bitcoins created through bitcoin mining every four years in order to limit supply.

More Innotative Options Sought

Observers say there are other factors specific to China fueling the price surge.
Hudoba’s Du Jin said there have been stories about scams in peer-to-peer financing that are pushing investors to more innovative types of investing such as bitcoin.

The bitcoin network also provides ways for traders to move funds beyond the country’s tightly-controlled borders by accessing digital platforms via the Internet.

Bitcoin, when priced in Chinese yuan on mainland Chinese bitcoin exchanges, trades at a 7.2% premium compared to counterparts that price the currency in U.S. dollars, according to Bitcoinity.org., an industry tracker.

China’s premium bitcoin prices have sustained for the last five months, indicating the country’s demand accounts for a lot of the recent price gains, according to Zennon Kapron, the author of a book on bitcoin and founder of Kapronasia, a financial technology consultancy.

Also read: China’s central bank cuts rates, again. More BTC adoption in the offing?

Yuan Loses Value

Kapron said investors are worried about the yuan’s decreasing value. The Chinese are protecting their investments by converting yuan to bitcoin.

A faltering economy, banks and financial institutions that are sweating, the falling yuan and economic inflation are all factors contributing to China being the sole reason for 80% of the global bitcoin trading volume, CCN reported in October.

Bitcoin is popular in China. As more factors emerge for the masses to look into finances and governance, there might yet be more bitcoin adoption in China.

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