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Bitcoin becomes 2015’s best performing currency

Bitcoin has had one of its best weeks since August 2014, recording a staggering 28.5% increase in market cap as the price of bitcoin reached US$500, at its peak on November 5. However, the price of bitcoin has since dropped by nearly 20%, consolidating around US$400.

Bitcoin has had one of its best weeks since August 2014, recording a staggering 28.5% increase in market cap as the price of bitcoin reached US$500, at its peak on November 5. However, the price of bitcoin has since dropped by nearly 20%, consolidating around US$400.

Despite the recent price decline, bitcoin has become the world’s best performing currency in 2015. The digital only alternative to traditional fiat currencies has overtaken the Indonesian rupiah, Russian Ruble, Malaysian ringgit and Brazilian real, which have all recorded substantial gains against the U.S dollar.

Over the past week, the Indonesian rupiah topped the chart with a 9.2% gain against the dollar, surpassing the the growth rate of most dominant currencies, including the Pound Sterling, Australian Dollar and the New Zealand Dollar.

The Russian ruble wasn’t far behind, with a 7.3% gain in 2015, after it finished 2014 as one of the biggest losers. The Malaysian ringgit and Brazilian real, two of this year’s worst performing currencies marked an average gain of 5.6% gain against the U.S dollar, respectably earning the 3rd and 4th spots at the top.

The rising price follows an unprecedented trend in the adoption of bitcoin’s underlying technology, the blockchain. Throughout the year large there have been a range of large investments, while financial institutions have been joining forces to research the technology. According to a survey conducted by U.K. based tech agency Magister Advisors, bitcoin may become the 6th largest reserve currency by 2030.

The survey reveals that bitcoin industry leaders expect financial institutions and banks to spend at least US$1 billion more, in the development of bitcoin and its underlying technologies, over the next 24 months.

Jeremy Millar"We have now reached a fork in the road with bitcoin and blockchain. Bitcoin has proven itself as an established currency. Blockchain, more fundamentally, will become the default global standard distributed ledger for financial transactions.”
— – Jeremy Millar, Magister Advisors Research Director

Despite the optimistic prediction of established financial institutions and experts, bitcoin exchanges and startups are unable to pinpoint a specific reason behind the recent surge in the price of bitcoin. However, leading bitcoin exchange Coinbase has stated three possible explanations; the rapid increase of trading volume and daily transactions, strong US infrastructure, and an increase in demand from Chinese bitcoin exchanges.

Some financial experts have also reasoned that recently implemented capital controls, from the Malaysian and Chinese governments, have driven the price to record yearly highs, although three of the largest Chinese bitcoin exchanges disagree. Huobi, OKCoin, and BTCChina have reported no perceivable effect.

The Malaysian government recently announced strict capital controls to prevent expat workers from sending the Malaysian Ringgit abroad. To sustain the positive growth of the currency, the government is forcing expat workers to invest a portion of their earnings in a remittance fund called Employees’ Provident Fund (EPF).

“The government is still determining the sum or percentage of salary that foreign workers need to pay, and when (including special circumstances) the workers can make withdrawals from the fund.”
—  – Sinchew Daily

China has also tightened capital controls, as money has been flowing out of the country at a fast pace for more than a year, and the rate has been accelerating recently. In August, the country’s official foreign exchange reserves dropped by US$93.9 billion, according to China’s State Administration of Foreign Exchange, while Goldman Sachs puts the net flow of money out of China at $178 billion for the same month.

Financial experts, including Calibrated Markets founder and developer Jacob Eliosoff, are convinced that capital controls have been a factor in the recent bitcoin price spike.

“The capital controls theory still seems the most convincing to me, especially given the large (>5%), persistent price premium on Chinese vs non-Chinese exchanges.”
— – Jacob Eliosoff, Calibrated Markets Founder

ZeroHedge, a financial blog managed by a group of editors who collectively write under the pseudonym “Tyler Durden’ or “Robert Meyers,” recently presented an interesting theory.
Based on the chart below, the bitcoin price begins to surge as the Chinese government makes an official announcement about further controls.

“If a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits in bitcoin, sit back and watch as we witness the second coming of the bitcoin bubble.”
— – ZeroHedge

Supporting the theory, China then announced annual limitations on cash withdrawals outside of the country, with China UnionPay bank cards, on Oct 1.

Regardless of the validity of this correlation, bitcoin exchanges and finance agencies agree that restrictions, and newly re-structured regulations, in countries such as Argentina, Malaysia, Venezuela and China have led to increased bitcoin trading volume and transactions, ultimately affecting its price.


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