Bitcoin surged 21 percent over the weekend, seeing a two-year high Monday morning. The digital currency is trading above $700 as traders anticipate next month’s “halving,” an adjustment to bitcoin’s mining procedure that could shrink the supply of the currency.
The halving is a change in the cap programmed into bitcoin’s mining program. Since bitcoin relies on individual users’ computing power to independently confirm transactions on the network, it rewards “miners” for every block of transactions confirmed with a batch of bitcoins. When bitcoin launched, miners were rewarded 50 bitcoins for a block. Every four years, that amount is cut in half, in an effort to curb the number of bitcoins on the market. In 2012, the reward was halved to 25, and it will again be halved to 12.5 in less than a month.
With the supply of bitcoins slated to be cut, the demand is rising and prices have skyrocketed, with buyers rushing to get theirs before the halving.
Chinese buyers anxious about mounting Chinese corporate debt makes up a large portion of Monday’s buyers, further sending up the price of bitcoin. In terms of the weekend bitcoin spike, almost 85 percent of transactions were conducted in yuan, according to data from CryptoCompare.
China’s debt problem is not a new issue, but on Saturday, David Lipton, first deputy managing director of the International Monetary Fund, renewed fears when he said that the country’s corporate debt problem needs to be dealt with “urgently.” Anxieties about China’s risky corporate debt, which makes up 145% of GDP, are sinking in with investors. One study shows China’s debt bubble as larger than the one that preceded the 2008 financial crisis.
The last time the price of a bitcoin rose above $700 was in February 2014, before Mt. Gox, one of the premier bitcoin exchanges, suddenly stopped bitcoin withdrawals. The exchange blamed an exploit in the software that they said allowed for the manipulation of data, but eventually admitted to being hacked, with millions of users’ bitcoins stolen. Prices peaked in late 2013 at more than $1,200 per coin, but bottomed out following the Mt. Gox incident at under $200 each.
Over the last year, prices have risen steadily, with prices rising 51.5 percent in dollar terms over the past month alone. Many market speculators who predicted the death of bitcoin are now saying the digital currency may hold up in the long term.