Any opinions expressedin this piece are those of the author and do not represent the views of S&PGlobal Market Intelligence.
Bitcoin has made a comeback since a major exchange went busttwo years ago, with the market's center of gravity shifting to China.
The value of the digital currency, which was introduced in2009, last month broke above the US$700 mark for the first time in more thantwo years, accordingto Bitcoinity.org, which tracks bitcoin data. As of July 28, each bitcoinunit changed hands at more than US$650.
Before the ascend, bitcoin had gone through some dramaticups and downs. It traded at more than US$1,000 in late 2013. Then, troublesbegan surfacing at Japan-based Mt. Gox, which at that time was the largestexchange for bitcoin, after half a billion dollars of the virtual moneyvanished.
As the scandal unfolded, culminating in the April 2014 of the bourse, bitcoinvalues plunged. And they did not recover quickly, hovering below US$250 at thestart of 2015.
Bitcoin did not go away though; instead, it has steadilyclawed its way back.
Behind Bitcoin's resurgence is China. Over the past twoyears, numerous bitcoin sites have sprouted up in the country, and now, thethree biggest exchanges based in China have a combined global market share ofmore than 90% in terms of trading volume, according to Bitcoinity.org data. Thelargest of them, OKCoin, was founded in 2013, with funding from privateinvestors including American venture capitalist Tim Draper, who has beenactively backing bitcoin startups.
In their early years, bitcoin platform operators in Chinaaggressively fought for market share by waiving trading fees, said ZennonKapron, the author of "Chomping at the Bitcoin: The Past, Present andFuture of Bitcoin in China."
"As trading was increasingly automated, this was veryattractive for many of the traders, so they shifted to the Chineseplatforms," he said.
For returns-hungry Chinese, bitcoin can be a good investmentthat offers big price swings, especially at a time like this when interestrates are low. Also, equity investments in China nowadays are not as profitableas they used to be amid concerns about the country's economic health. The yuanis losing value as well, a condition that can make bitcoin look all the moreattractive to Chinese investors.
Against this backdrop, a "convenient alternativeinvestment like bitcoin" can be attractive for traders, Xu Qing, arepresentative for China-based Huobi, the world's No. 2 bitcoin exchange bytrading volume, told CoinDesk, a bitcoin data and news site.
Chinese investors are known for their zeal for speculativeinvestments, sometimes through borrowings, which observers say have contributedto asset price bubbles across the country's economy. Some, if not many, bitcointraders in China may be acting on the same impulse.
A lot of bitcoin buyers in China are probably piling in asthey see prices climb, without thinking much about risks, Kapron said.Bitcoin is yet to be recognized as real money in China or elsewhere, and itsusage for real-life transactions is limited.
"A large percentage of that is driven by emotion,"he said. "I think China was the first country tohave a song about gambling," he said, likening Chinese bitcoin investorsto gamblers with a laugh.