Bitcoin Extends Rally, Breaks Through $700
By Anthony Jerdine| June 16, 2016 — 09:23 AM EDT
Bitcoin, (BTC) the blockchain-based digital currency has extended its recent rally and is now exceeding $700, giving it a “market cap” of just under $11 billion. Bitcoin has gained more than 53% so far over the past 30 days. Other cryptocurrencies, sometimes referred to as “altcoins” have also seen a boost in their prices: Litecoin (LTC) is trading at roughly $5.50 (a 35% gain over the past 30 days) and Ether (ETH), the digital currency on the Ethereum blockchain is just under $17, a 40% increase over the same period.
Causes for The Rally
While some may be skeptical of this rally in bitcoin due to its rise to around $1,200 back in late 2013 and subsequent collapse to under $200 in a matter of weeks, others are hailing this bull market as more fundamentally sound.
Demand from China has increased dramatically, especially since Bitcoin and other digital currencies can allow its citizens and firms to effectively circumvent capital controls anonymously and cheaply. In fact, recently, Chinese bitcoin markets have accounted for nearly 90% of all exchange volume, with the U.S. dollar surprisingly accounting for less than 8% of all BTC exchanges. As demand from China and the rest of the world increases, the price of bitcoin will have to increase since its rate of new supply is fixed to one block every ten minutes on average and cannot adjust to accommodate new demand. This is a unique feature of bitcoin and its altcoin cousins that is baked in to the protocol.
The other cause for the rally is anticipation of the block reward halving for bitcoin that will occur in just under a month, some time around July 10th, 2016. The block reward is the number of new bitcoins created when miners are successful, and it is another hard-wired ferature of the protocol that this reward will be reduced by 50% approximately every four years. This amount began at 50 BTC, and was cut to 25 BTC in the summer of 2012. Soon it will be cut once again to 12.5 BTC, and this will effectively double the cost of production as well as decrease the amount of new supply available daily for sale. The market is likely anticipating this halving and the price is increasing ahead of that event. Sometimes in the stock market, there is a mantra to buy on the rumor and sell on the news. We shall see if the price of bitcoin drops after the “news” materializes.