Game-Changer for Bitcoin Prices
Looking back, it seems obvious that government meddling would spark a bitcoin price surge. You see, Chinese regulators have been trying to stop money from leaving the country and it led to a massive increase in demand for bitcoins…
Bitcoin prices surged over the long weekend, jumping 15% to $530.00. It was the highest level for the bitcoin price since August 2014. However, the cryptocurrency was trading even higher in China, where investors were willing to shell out $573.00 for a single bitcoin. (Source: “The price of bitcoin just surged to a 20-month high,” Quartz, May 29, 2016.)
This is what economists call “capital flight.” When a lot of people are desperate to ship their fortune overseas, governments can respond by making it illegal. They ban people from transferring money out of the country.
A research report from CoinDesk estimates that as of early 2016, China made up 95% of bitcoin’s trading volume. Capital flight is the only explanation for such high demand.
After all, Chinese citizens have watched much of their wealth evaporate in a series of stock market crashes. The Shanghai Composite Index dropped by 30% last June, followed by repeat performances in August and January.
Billions of dollars have been wiped out. Many people are concerned the country’s financial crisis could soon spiral into a full-blown economic collapse. Unlike us in the West, most Chinese citizens don’t have the option of leaving with their wealth intact.
But bitcoins might be their one-way ticket out of China. The revolutionary blockchain technology is much harder to track than conventional money. In bitcoins, money doesn’t flow through a bank, so it’s tough for the government to crack down on transfers.
Not only is this a useful feature of bitcoins, but increased demand from China could help stabilize the currency’s value. Sooner or later, governments could be forced to recognize the superior nature of blockchain technology.