In the face of declining performance in other investment categories, why is Bitcoin—a digital currency many investors consider to have “no real value”—continuing its upward trajectory?
Bitcoin’s impressive bull run shows no signs of slowing down as we step into the new year. Between January 1 and 2, 2017, Bitcoin’s cumulative increase exceeded 7.5%. At the time of reporting, the price of a single Bitcoin had surged past ¥7,300, coming within just ¥700 of its 2013 all-time high of ¥8,000. Converted at the latest onshore RMB to USD exchange rate, this means Bitcoin had broken the $1,000 barrier.
According to industry experts, 2016 was a year of consistent growth for Bitcoin, with prices rising by 180% and reaching a yearly high of ¥6,596. For investors, this period has been exceptionally profitable.
This bullish trend has also led to a significant increase in trading volumes on domestic platforms. Data from one exchange showed that the lowest daily trading volume in December 2016 was ¥670,000 on the 19th, when the price was ¥5,588. In contrast, the highest volume occurred on the 22nd, reaching ¥5.49 million with the price at ¥6,180.
So what’s driving the sustained rise of this digital asset, especially when other investment avenues are underperforming? And as more investors join the market and trading activity grows, how high can this rally ultimately push Bitcoin’s price?
Key Factors Behind Bitcoin’s 2017 Surge
Domestic Investment Trends
Several industry veterans point to a mix of domestic and international influences. Domestically, Bitcoin’s strong performance is partly a result of the broader investment landscape.
Compared to other options, the stock market is still in a post-bull adjustment phase, gold shone in the first half of the year but declined in the second, and the property market is facing purchase restrictions. Bitcoin, on the other hand, offers relatively low entry barriers and has delivered outstanding returns.
Moreover, with limited investment channels available, Chinese investors are actively looking for alternative ways to preserve their assets. As避险情绪 (risk-aversion sentiment) grows, Bitcoin trading offers an option for diversification, much like other investment vehicles.
Another major domestic factor is the growing awareness and adoption of blockchain—the distributed ledger technology underpinning Bitcoin. Throughout 2016, blockchain gained significant attention from traditional financial institutions, government regulators, and tech firms alike, bringing Bitcoin along into the spotlight.
Purchasing behavior has also matured. Investors are increasingly treating Bitcoin as a long-term holding and a legitimate investment, rather than a short-term speculative vehicle.
International Demand and Economic Conditions
Beyond domestic factors, rising international demand has also contributed to the bull market. Since June, economic turmoil in Venezuela, for example, has led many entrepreneurs to turn to Bitcoin mining. Reports indicate that the price of Bitcoin in Venezuela rose to nearly $1,000.
Analysts note that because Bitcoin’s total supply is limited, increased global demand naturally influences the price of this inherently deflationary digital asset.
How Investors Are Engaging with Bitcoin
Both retail and professional investors are getting involved, generally falling into three categories:
- Retail Investors on Trading Platforms: In China, the barrier to entry is low. On most platforms, you can start buying and selling with a minimum top-up of just ¥100. However, it’s important to note that there is no specific licensing framework for Bitcoin exchanges in China, so investors should exercise caution and perform due diligence. Retail investors can use a variety of strategies, including technical analysis and news-based trading—methods commonly used in stock markets.
- Technically-Skilled Investors: Those with a technical background can engage in quantitative trading strategies for Bitcoin, such as trend following or cross-exchange arbitrage.
- Miners: Investors with access to cheap electricity and technical talent can explore Bitcoin mining. However, this requires a significant upfront investment and carries higher risks.
Understanding the Risks
Major digital currency trading platforms in China have issued risk warnings to investors. They highlight that recent price fluctuations have been extreme, with no limits on gains or losses, making risk control essential.
It’s crucial to understand that Bitcoin’s price is entirely market-driven. High potential returns come with equally high risks. Investors are urged to thoroughly understand the mechanics, recognize the risks, and objectively evaluate their own investment capacity and risk tolerance before participating.
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Frequently Asked Questions
Why did Bitcoin’s price surge in early 2017?
The surge was driven by a combination of increased domestic interest in China due to limited alternative investments, growing international demand from countries experiencing economic instability, and heightened mainstream awareness of blockchain technology.
Is Bitcoin a good long-term investment?
Bitcoin possesses commodity-like properties similar to gold, offering potential for appreciation. However, its price is highly volatile and determined by a 24/7 global market, making it a high-risk asset. Always assess your risk tolerance.
How can I start investing in Bitcoin?
You can begin by signing up on a reputable trading platform. The entry barrier is often low, but it's vital to choose a secure platform and start with an amount you are comfortable potentially losing.
What is Bitcoin mining?
Mining is the process of using computational power to validate transactions and secure the Bitcoin network. Miners are rewarded with new Bitcoins. It now requires significant specialized hardware and cheap electricity to be profitable.
What are the major risks of investing in Bitcoin?
Key risks include extreme price volatility, the lack of a centralized regulatory framework, potential security vulnerabilities on exchanges, and technological changes that could impact the network.
How does blockchain technology relate to Bitcoin’s price?
Blockchain is the foundational technology of Bitcoin. As industries explored and adopted blockchain solutions throughout 2016 and 2017, it generated significant publicity and increased public understanding of Bitcoin, indirectly supporting its price.