BitBeat: Bitcoin Surges Past $400 on Back of the New 'Shining Star'
Blythe Masters, CEO of Digital Asset Holdings, speaking at a Bloomberg conference in October. She is one of the most visible proponents of blockchain technology.
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Bitcoin Latest Price: $413.20; up 15% (via CoinDesk)

Crossing Our Desk:

The price of bitcoin is surging, crossing back over the $400 mark for the first time since last November, amid a burst of trading activity and a surge in interest in the technology underlying the cryptocurrency.

Bitcoin crossed back over $400 on Tuesday (and well over it on most exchanges), up 15% over the past 24 hours and capping a run that has seen it nearly double since falling to $209 back in August. It's been nearly a year since the price was at the $400 level, last November. Back then, it was on its way down, a drawn-out, year-long slide from the late 2013 all-time high above $1,100. Today, the price is on its way up.

There isn't one explanation for the move, but one thing is clear: The bitcoin hype machine is back in action - even if it's been redirected.

The news around the cryptocurrency world has been pretty bright lately. Even if bitcoin still has a stigma in the public eye, the hype around the potential of bitcoin's underlying mechanics - the so-called blockchain - has positively exploded. Former J.P. Morgan Chase & Co. executive Blythe Masters, now running the fintech startup Digital Asset Holdings, graced the cover of Bloomberg Markets magazine, in an article titled "It's All About the Blockchain." The cover story of this week's Economist, "The Next Big Thing," is also about the potential of the blockchain. Microsoft MSFT +1.73% is putting Ethereum-based blockchain tools into its Azure business service. It seems as if every bank on Wall Street and in the City is setting up some kind of group to probe and experiment. It's as if the shift in focus to the blockchain has completely changed people's opinions about the technology.

"The idea is now at the forefront of every financial institution, every corporation, every media outlet," said Bobby Cho, director of trading at New York-based exchange ItBit. "Even if you're reading about blockchain technology, you're inherently reading about bitcoin also." The interest is driving up the trading activity, and the increased activity is spurring interest from institutional traders who've been sitting on the sidelines, waiting for bitcoin's market to perk up again. "Now the volatility is back," Mr. Cho said, "and they're thinking, 'we can make some money here.' These guys are looking for a product to trade."

It is clear that volume is rising. In early September, trading on BTC China, the biggest bitcoin exchange, was averaging around 20,000 BTC a day. Lately it's been closer to 80,000 BTC, and CEO Bobby Lee told MoneyBeat that it on Tuesday, it was near to the exchange's one-day record of 90,000. Bitcoin is still a relatively thin market, so the added volume alone can explain part of the surge. Any buying spree will be amplified by the scarcity of bitcoins, something that helped explain the 2013 surge to the all-time high of $1,100.

Some have surmised that the new capital controls imposed in China are spurring nationals there to use bitcoin as a way to evade the controls, but Mr. Lee rejects that. There are better ways to evade capital controls, he said. China has an extensive black-market currency exchange system that's very similar to the hawala system used in the Muslim world (we explained this at some length in "The Age of Cryptocurrency") and effectively evades the stringent capital controls.

Additionally, the price of bitcoin when converted from U.S. dollars to yuan winds up about $10-15 higher. This reflects, Mr. Lee said, the fact that given the price controls, it's actually harder to buy bitcoins there. So the arbitrage opportunity is to buy bitcoin in dollars, and exchange them into yuan. That makes it less likely that traders are moving their yuan out via bitcoin.

In China, the trading is all speculative, Mr. Lee said, and right now all that positive press has the speculators driving up the price. "People in China are always trigger happy," he said. "We've been in a bear market for a year and a half." The blockchain is the new "shining star, and it spills over to the bitcoin world as well."