It’s not that prices of bitcoins are back above $1000, but just how quickly it has taken place. To recap, fueled by Chinese demand after Baidu announced it was accepting bitcoins for certain web services in late October, prices rallied to all-time highs. By the end of November, bitcoin has more than quadrupled its previous highs set in April 2013 to trade around $1200. However, just as China led demand led the way higher, prices dropped as a result of announcements that the Public Bank of China (PBOC) has instructed financial firms not to be involved with bitcoin currency exchanges. This triggered a quick drop to a low of $600 to begin December, but prices quickly bounced back to the $800 to $900 levels.
That optimism turned out to be short lived as BTC China, China’s leading bitcoin exchange by volume who had also become the top global exchange during November, was beset by its own set of imposed restrictions. Due to policy changes from its payment processing firm, YuPay, BTC China announced in the middle of December that it was temporarily suspending yuan deposits and only processing withdrawals. This caused a selloff that was especially hard in BTC China as bitcoin prices on the exchange traded at a sharp discount to other major exchanges. Elsewhere, prices hit a low of $400 on exchanges such as Bitstamp.
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But that’s the past, and it’s quickly become forgotten as prices have once again traded above $1000 today on MtGox with a high of $1093. The price rise has occurred even as demand from China has been tempered compared to the previous bout of speculation that took hold in November. As a reference point, taking over BTC China’s market has been the emergence of Chinese based Huobi which according to Bitcoinity is currently responsible for over 50% of overall global exchange volumes (there is some debate as towards the accuracy of those numbers). In any event, regardless of the increase of volumes, prices in dollar terms at Huobi have been near levels as those on BTC-e and Bitstamp, indicating that Chinese demand from customers hasn’t triggered premiums to be paid at Huobi.
Overall, the current rebound appears to be based on improving fundamentals for bitcoins as 2014 has begun where 2013 ended, with an expansion of known names announcing that they would begin to accept the digital currency as payment. Recent examples are Overstock.com and Zynga, as well possible launches of financial funds taking an interest in bitcoin.