Is Bitcoin crazy again? It has risen by more than 30% in the past week

In the past week, Bitcoin, which had been silent for a long time, ushered in a small climax, with a cumulative increase of more than 30% throughout the week.

Xue Jiao

Three consecutive 10% increases have made Mr. Li from Shanghai regretful. He had just sold all his bitcoins in February and March this year, but he did not expect that Bitcoin would usher in a crazy surge starting from last Friday (May 27).

"I started investing in Bitcoin in 2014 and was trapped for more than a year before finally getting out of the trap. Now seeing the price rising so sharply, I'm a little tempted again," Mr. Li told the reporter from China Business News.

Since its birth, the price of Bitcoin has rarely "slowly risen". It has always been normal, but when it rises, it rises dramatically. "At the beginning of last week, the price was still around 3,000 yuan per coin. On Sunday (May 29), the price rose to 3,944 yuan (about 601 US dollars) per coin." Mr. Li told our reporter that the current price of Bitcoin has hit a new high since July 2014. "I sold it for about 3,000 yuan, and I lost more than 900 yuan per coin."

In fact, people have always had a clear love-hate relationship with Bitcoin, which has been controversial for nearly 8 years. Supporters firmly believe that Bitcoin and the blockchain technology behind it can subvert the existing monetary system, while opponents believe that its "decentralization" is difficult to achieve and therefore worthless. So is this wave of Bitcoin's launch a "second spring" or a "last gasp"?

Why did it surge 31% in one week?

In the past week, the price of Bitcoin, which had been dormant for a long time, ushered in a small climax, with a cumulative increase of more than 30% throughout the week. This made people in the industry exclaim that "crazy Bitcoin is back."

Some analysts believe that the renewed "madness" of Bitcoin is related to the recent resurgence of expectations for the Federal Reserve to raise interest rates, which has led to a strengthening of the US dollar index and renewed pressure on the RMB exchange rate. "The expectation of RMB depreciation has stimulated a surge in demand for Bitcoin among Chinese investors." The analyst said that huge personal deposits from China are looking for new ways to invest, and Bitcoin may be one of the options.

In recent years, Chinese investors have been playing a pivotal role in the relatively small Bitcoin market. In just three months from September to November 2013, the price of Bitcoin once rose from 800 yuan to 8,000 yuan per coin. The nine-fold increase attracted a large number of Chinese speculators. Statistics show that by the end of 2013, RMB transactions accounted for more than 67% of the entire Bitcoin market share.

Huobi.com is one of the domestic Bitcoin trading platforms. Just 10 days after its launch in May 2013, the daily Bitcoin trading volume exceeded 1 million yuan. Huobi.com founder Li Lin recalled to China Business News that the peak number of account openings at that time reached 10,000 per day, and the daily trading volume reached 1.5 billion yuan six months after its launch. As of December 12, 2015, Huobi.com's daily trading volume exceeded 6.1 billion yuan, setting a new global Bitcoin trading record.

This shows that investors from China are enough to influence the trend of the global Bitcoin market, but it is a bit far-fetched to attribute the crazy rise of Bitcoin to the fluctuation of the RMB. "Bitcoin is a virtual commodity, and its volume is very small, far from being linked to the RMB exchange rate." An industry insider told our reporter.

Ling Kang, vice president of Bitcoin China (BTCC), previously told a reporter from China Business News: "Bitcoin is not like the stock market, which has daily price limits, so the price can fluctuate greatly in an instant. In addition, the 'plate' is small, so any disturbance can quickly cause a chain reaction."

As for the reasons behind the surge in Bitcoin last week, many industry insiders said that the global popularity of blockchain, the "cornerstone" of Bitcoin, changes in supply and demand in the Bitcoin market, and improvements in the investment and policy environments may have contributed to this round of price increases.

Du Jun, co-founder of Huobi.com, said that from the perspective of supply and demand, since the Bitcoin algorithm is set to halve its output every four years, Bitcoin will usher in the halving day at the end of June this year, so the supply will be reduced by half, which will boost the price; in terms of the investment environment, investment categories such as P2P and stocks have been weak since September last year, and a large number of investors and funds need new investment outlets, so convenient investment products such as Bitcoin have become new targets.

Is Bitcoin dead?

The CEO of TransferWise, an international payment application software, recently said that "Bitcoin is dead", and even Mike Hearn, a member of the core development team of Bitcoin, believes that "Bitcoin has failed." In an interview with the media, he said: "Now no one uses Bitcoin, there are no transactions, and the entire system is on the verge of technical collapse."

The BTCC official website shows that the trading volume of Bitcoin on May 29 exceeded 150,000. Hearn's statement of "no transactions" is obviously a bit exaggerated, but it cannot be ignored that Bitcoin has been controversial since its birth, making its growth path particularly difficult. One of the most controversial issues is its "decentralized" nature.

Ying Zhanyu, a researcher at the Institute of Finance and Securities of Renmin University of China, said that "decentralization" means that the state gives up its existing power and the market corrects itself, but at present, the conditions are not mature either in reality or in theory. Cao Yuanzheng, former chief economist of Bank of China, also believes that Bitcoin is a super-sovereign currency, and super-sovereign currency does not have a matching monetary policy.

However, there are also many people who are optimistic about Bitcoin and blockchain technology. Former US Treasury Secretary Lawrence Summers recently said that blockchain technology is likely to permanently change the financial market.

Indeed, the concept of blockchain, the cornerstone of Bitcoin technology, has become the most talked-about topic in the global innovation field over the past year. In 2015 alone, the global investment in Bitcoin and blockchain-related startups was approximately US$480 million, and in the first quarter of 2016 it had reached US$160 million.

"As an innovative thing, Bitcoin has been able to survive and grow steadily in the past few years, which is a sign of success," said Li Qiyuan, president of BTCC, in an interview with our reporter.

Li Qiyuan believes that the limited number of Bitcoins is in stark contrast to the current inflation and decline in the purchasing power of legal tender caused by the massive money printing by central banks of various countries. "The goal of Bitcoin is not to replace existing currencies, but to become a universal digital asset in the world to facilitate people's lives."

From a policy perspective, the United States, Japan, and Europe have recently relaxed their policies on Bitcoin, allowing Bitcoin to be used as a settlement currency and legally regulating Bitcoin exchanges and trading activities.

As early as December 2013, China issued the "Notice on Preventing Bitcoin Risks", stating that Bitcoin is a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market. Bitcoin transactions are a commodity trading behavior on the Internet, and ordinary people have the freedom to participate under the premise of assuming their own risks.

But it is worth noting that the People's Bank of China has talked about digital currency and Bitcoin's underlying technology blockchain many times recently.

The central bank's digital currency seminar held on January 20 sent a clear signal: the central bank will strive to launch digital currency as soon as possible, and revealed that a special research team was established as early as 2014.

Zhou Xiaochuan, the governor of the central bank, also publicly stated: "For the digital currency controlled by the central bank, a series of technical means, mechanism designs and laws and regulations will be adopted to ensure the security of the digital currency operating system."

But he stressed that the digital currency that the central bank is studying has been different from the design concept of Bitcoin from the beginning. "The central bank will use a variety of information technology means, including cryptographic algorithms, to ensure the unforgeability of digital currency. Future technologies will also be upgraded, and we will take technological upgrades into consideration in advance and introduce the concept of long-term evolution from the beginning."