In the first week of the year 2016, Bitcoin price was at the level of $430. On January 7, 2016 the People's Bank of China devalued the Yuan, thus the Yuan price fell to 6.5446 for $1 US.
This is the lowest price since 2011. Moreover, China's foreign exchange reserves fell dramatically in 2015 to $513 billion US. Shenzhen and Shanghai Stock Exchange reacted quickly and the Shanghai Composite Index fell by 6.85%. Soon after that trading on these exchanges stopped.
The fall on the stock exchanges in China caused a similar fall on the world’s markets: NASDAQ fell by 3,03%, Dow Jones lost 2.32%, S&P 500 fell by 4.9%. These factors have pushed Bitcoin’s price to increase to $452 by January 8, 2016.
Bitcoin price chart, January 2016:
In mid-January, the former cryptocurrency supporter and Bitcoin Core developer Mike Hearn made a speech with the message that the ecosystem of digital currency is experiencing a large-scale crisis. He believed that the Bitcoin foundations are undermined and that the Bitcoin price in the long term will be reduced.
Mark Hearn said he was going to leave the digital currency ecosystem and sold all the coins he had. This statement by Mike Hearn caused massive panic among cryptocurrency users and the price of Bitcoin dropped to $360. Thus, in January, we saw the Bitcoin price drop by $90 per coin. By the end of January the price of Bitcoin has risen to $382.
Bitcoin price chart, January-April 2016:
I should note that the panic in the market did not last long. By the end of February Bitcoin had returned to the level of $400 and in the beginning of May the BTC price had reached the level of $450 again. This smooth increase of the Bitcoin price was accompanied by a simultaneous decrease in the price of the dollar against the world’s major currencies, especially the Yuan.
Considering this more traders preferred to buy Bitcoin which affected the growth of its price. In May the Bitcoin price made a real breakthrough when it reached the level of $540 on May 29, 2016.
Bitcoin price chart, May 2016:
Probably, the reasons for the explosion of Bitcoin price is China. Firstly, because the recent devaluation of the Yuan, which we saw some time ago. Secondly, the Chinese Yuan is controlled by the government and is rigidly fixed to the US Dollar, which means that investors have no objective valuation of the Yuan against the USD. Thirdly, there are strict restrictions on the export of capital. Therefore, market players consider the price of Bitcoin as an objective reflection of the value of the Dollar and the Yuan. Thus, for Chinese investors Bitcoin is great tool to withdraw money from China using the real exchange rate. Therefore the price of Bitcoin on the Chinese market, is always higher than on the world’s markets.
It is worth paying attention to the growing popularity of Bitcoin as the tool of risk insurance.
Note: This review is a personal opinion of the author, the article does not guarantee the completeness of the information and can not serve as the basis for investment and recommendation to buy or sell bitcoins.