China gets a taste for Bitcoin

After the Bitcoin frenzy in spring, a few days ago the Bitcoin managed to overcome the 135 USD resistance that had built up over the course of several months. It surged upwards, in its own temperamental fashion, and has now passed 190 USD. Last year’s high of 260 USD is still a long way off, but it could be reached quickly at this pace. Why is this happening precisely now? I think there are two main reasons.

First, there were fears that demand for Bitcoin largely resulted from the possibility of using it to buy drugs anonymously on the Deep Web. The exchange rate reaction to the closure of Silk Road clearly showed that is not the case. Panic sales following the news died down within just one day, and after a few days the price had climbed back to the level that it was at before the panic. In other words, a large crowd of committed potential buyers were eagerly awaiting a small drop in the price. Ultimately that indicates strong support for Bitcoin. Knowing that, speculators can now purchase the virtual tender with greater confidence.

Second, there are several indications that Bitcoin is increasingly important to China. It is possible to buy Bitcoins on numerous Chinese exchanges, and the volume on them is growing rapidly, to the extent that on some days last week BTCChina was the exchange with the largest volume, in yuans! Trading in BTC against the dollar is being toppled from its throne, which is a pretty big turnaround.

Of course that’s not coincidental. A week ago Baidu Jiasule, a subsidiary of China’s leading Internet search engine, Baidu, which is dubbed the “Chinese Google”, announced that it’s now possible to pay for its services in Bitcoin. That news is particularly significant since many believe such a decision can only have been made with the knowledge of Baidu Jiasule’s parent company and the Chinese government. The big question is whether that is true or not.

In any case, the new developments mean that the potential risks preying on Bitcoin have shifted geographically to China. If the Chinese government does not in fact welcome the emergence of Bitcoin in the country and voices its displeasure, then it could trigger a serious rush to sell.

Yet who else would have interest a tender that is becoming widespread and that is not merely nominally independent from governments, if not the world’s largest saver? China is surely watching with concern as USA’s money printing presses operate at maximum capacity to churn out brand new dollar bills. That threatens the value of Chinese reserves, which are largely denominated in dollars. For China it would be reassuring to have access to and keep savings in a currency that the central banks of indebted countries cannot inflate by excessive quantitative easing. If China gets behind the Bitcoin, then it will have incredible potential.

 


Original date of Hungarian publication: 22 October 2013

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