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Cryptocurrency market activity: a wild start to 2017

2017 opened with a dynamic cryptocurrency market, including major price activity in Bitcoin and many other traded cryptocurrencies. The Smith + Crown Index suggests the whole market rose and fell.

The index, composed of 11 major cryptocurrencies including Bitcoin, rose from 1200 on December 20th, 2016 to 1745 on January 5th before falling back and now standing close to 1500.

The wild rises and falls affected both Bitcoin and many other currencies once considered competitors. Ethereum rallied from around $7 to over $11.35 before dropping down. Money flooded into the crypto markets and impacted almost all major traded currencies. It was mostly a rising tide.

Activity in China has been the suspected cause in most recent major price movements. Many suspect Chinese citizens are using Bitcoin to evade capital controls, move wealth outside mainland China, and otherwise part with Yuan. Trade volumes on Chinese exchanges and in BTC-CNY pairs exceed volumes on other exchanges and other trade pairs, and many price rallies begin with CNY-BTC markets. CoinDesk has a blow-by-blow account of the major recent ups and downs for Bitcoin’s price, and they highlight the role of CNY trading.

Driving factors in China (not just yuan depreciation)–a major Chinese blockchain media outlet–ran an article on why Bitcoin’s price has increased so much at the end of 2016 and early 2017. The audience of the article is Chinese, unlike many stories in Western news outlets, it points more to growing excitement about Bitcoin and blockchain technology in China than it does to macroeconomic factors, such as the devaluation of the Yuan.

The article gives seven reasons that could explain Bitcoin’s recent price increase.

Blockchain receives high level endorsement from multiple government agencies in China. In 2016 China’s blockchain tech industry expanded rapidly. The Chinese State Department even included blockchain tech in its official plan for the strategic development of domestic information technology, which it published on December 30th, 2016. They expect that by 2020, China’s digitization capabilities will be among the best in the world. Similarly, On December 31st, 2016, the city government of Guiyang published its “Blockchain Technology Development and Use Case White Paper”. It detailed a plan for how blockchain will impact the development of government, society, and industry. Blockchain is becoming an increasingly popular pathway to development for China’s less developed cities, who are hoping to make a name for themselves with this new technology.

The possibility of a digital yuan. The Chinese central bank and the People’s Bank of China are both researching digital currency. They expect to release requirements and formal proposals by the end of 2017.

Bitcoin receives attention from Chinese media. On January 1st 2017, state run media named bitcoin one of the top six investment opportunities of 2017. This combined with the growing global recognition of cryptocurrency as an investment platform (starting with its classification as an asset in the US) has lead to increased interest among investors.

Bitcoin surpassing $1,000 on January 2nd, 2017 causes a stir on Weibo. Bitcoin’s rocketing prices didn’t go unnoticed on China’s most popular blogging platform. Increased activity on social media may have in part fueled bitcoin’s recent rise.

Uncertainty in international economic stability is rising in much of the world. 2016 has been a doozy of a year for financial markets, and the Chinese have taken notice. After Brexit, India’s recent currency crisis, the US federal reserve raising the national interest rate, Venezuela’s out of control inflation, and the election of Donald Trump, trading in CNY for foreign currencies is suddenly seeming less attractive to the average Chinese investor.

Depreciation of Chinese Yuan compared to USD. From 2013 to 2016, CNY consistently depreciated in comparison to USD.

Changes to Chinese Capital Controls. New policies, released on December 28th, 2016, make it harder to exchange Yuan for foreign currencies by limiting daily transactions per person to 50,000 CNY, about $7,265 at current exchange rates.


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Vendredi 13 Janvier 2017