What is going on in the bitcoin market?
The digital currency is one of the best performing assets since August. The current price is hovering around $724 up 24% in the last 3 months.
One of the primary reasons for this is the currency squeeze in China. As Chinese middle and upper class tried to put their money into western assets, like houses, businesses and other real assets, the government cracked down on moving the yuan out of the country.
So the Chinese investors are now using bitcoin as a way of moving cash off shore. Take a look at this real-time chart of purchases around the globe and the quantity of bitcoin being purchase in China minute-by-minute.
Can this last or will there be a crack down by the government?
My assumption is it will last as a way of placating the newly rich Chinese. If it’s not bitcoin it may be another crypto-currency or gold or silver.
The problem with Chinese currency is its pegged its value to the dollar and since China is one of the few countries experiencing inflation, that means it needs to devalue the yuan every few weeks to keep the value in check.
The wealthier Chinese see this and need a way to hedge inflation outside China, since there are few security instruments like a robust bond market to help guard against currency depreciation.
So look at this as not the apocalypse but as a means of going long on the growing Chinese economy.