Earlier this week, we pointed out that after tracking the recent drop in the Yuan (alternatively, rise in the dollar), bitcoin unexpectedly spiked breaking out of its recent rangebound trade and rising to three month highs following news that China had begun a regulatory crackdown on wealth-management products, which indicated that some of the illicit money parked in these shadow bank conduits, which collectively house just shy of $2 trillion in assets, will slowly drift out of the mainland using such capital outflow “proxies” as bitcoin.
The next day we presented readers a report from Needham in which the investment bank explained, in fine detail the “fundamental” cases behind bitcoin going higher, and as a result the bank raised its price target on the digital currency to $848 from $655. Incidentally, Needham agreed with what has been the main catalyst for the surge in bitcoin since last summer, one we explicitly said would send the digital currency soaring last September (when it was trading in the low $200s, and urged readers to frontrun the imminent and panicked Chinese buying that was about to be unleashed).
Amusingly, while our correct theory that China would use bitcoin to circumvent capital controls was mocked by both Bloomberg and the FT, both are now solidly onboard. “There is a premium in bitcoin pricing in China as a hedge against the yuan,” Jack Liu, the Hong Kong-based chief strategy officer at OKCoin told Bloomberg. “Strength is likely to carry into year-end.”
Since then bitcoin has tripled, and over the past two days has broken out sharply to the upside once again, now over 10% higher in the just the past week. The latest round of buying took place overnight with major bids emerging from China, which have taken the price of bitcoin on the most popular US trading platform, Coinbase, to $725 as of this writing.
At this point the question is not how high Bitcoin will rise, but how fast: Bitcoin will rise above $700 before year-end amid strong Chinese demand and the possibility of unexpected events, such as Donald Trump winning the U.S. presidency, said Aurélien Menant, chief executive officer of Gatecoin Ltd. in Hong Kong. “The outcome of the U.S. elections is likely to have an impact, as would the consequence of a Fed rate hike,” said Menant. “A black-swan event in the coming months, which seems to be likely, could also drive bitcoin to all new highs. In the meantime, further yuan devaluation and interest among Chinese investors will continue the momentum.”
And while we know the source of funds, i.e. China, what may be more exciting for bitcoin bulls – at least for those with a technical bent – is that at this rate, the big bitcoin trendline from its all time 2013 high, through the recent July spike highs, is about to be breached, potentially unlocking upside for bitcoin to rise back to four-digit level.
It may not stop there. As Needham showed last week, if bitcoin is percieved in China, and elsewhere, as “digital gold”, its way to a five-digit prices is assured.
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