Bitcoin Surges to Two-Year High as Supply Seen Shrinking in July
This article by Justina Lee for Bloomberg may be of interest to subscribers. Here is a section:
Profits from mining bitcoins will be reduced in July, a process that’s written into the code to limit supply, according to Chinese exchanges OKCoin and Huobi. Increased attention from venture capitalists and banks on blockchain, the technology of digital ledgers, has boosted bitcoin’s legitimacy, Jack C. Liu, chief strategy officer at OKCoin, said in Hong Kong.
"The halving of the supply of Bitcoin is attracting many retail investors," Liu said. "More broadly, we continue to see follow-through from the blockchain hype cycle translating to interest in bitcoin the asset."
The price of bitcoin has mostly recovered following a steep decline to less than $200 in January of last year from more than $1,000 in December 2013.
Bitcoin’s rebound is coinciding with weakness in the yuan, which fell the most in two months on Monday in Shanghai. Losses have accelerated in recent weeks as the dollar strengthened and China’s economic outlook deteriorated. Data Monday showed industrial output rose 6 percent in May from a year earlier, while fixed-asset investment increased 9.6 percent in the first five months of 2016, missing all 38 economist forecasts.
"What we’ve seen over the weekend is more of the same: Chinese fear of a slowing economy and the yuan potentially looking to make another move lower," said Ryan Rabaglia, head of wholesale product management at ANX International in Hong Kong.
"Each time we see yuan weakening we tend to see a triggering of capital outflows out of China, and bitcoin has been on the winning end of that."
China represents approximately 80% of bitcoin trading activity. This graphic of live bitcoin trades helps to illustrate just how much on an influence Chinese buying has on demand. With the halving of the reward for minting new bitcoins expected to occur sometime between now and July interest in the cryptocurrency is increasing.
With the renminbi testing its lows against the Dollar, an ever larger proportion of sovereign bonds trading at negative yields and the cost of supply due to double Bitcoin extended its advance today. With such a volatile vehicle, outsized moves are possible such as the one that saw prices accelerate higher in 2013. However prices can fall just as quickly so stops are necessary where possible just like in any other accelerating market.
Broadly speaking the blockchain technology, upon which the bitcoin market is based, is expected to play a more important role in recording all kinds of transactions in the financial and legal sectors over the coming years. The benefit of the technology is that with current technology it is near impossible to hack, while the demand side is being bolstered by the seemingly insatiable growth in the cost of compliance for the financial sector which could be looking for a way to cut costs.