Huobi and OKCoin, two Chinese exchanges, now collectively account for some 92% of global trading in bitcoin.

?The surge in bitcoin buying this weekend could be the latest sign of how Chinese investors are moving money between asset classes quickly in search of high returns. In the past year, equities, bond and commodities markets in China have in turn seen massive surges of new investing, often followed by a collapse in prices as funds have moved elsewhere.

“There’s a lot of hot money in China that has to go somewhere,” says Du Jin,chief marketing officer at Huobi. Huobi has seen a surge of new registrants in the past one month, he said.

Expectations that new supply of the virtual currency will decrease next month could also be behind the latest price surge. The creation of bitcoin via a complicated computing process called “mining” gets more challenging over time, thanks to a mechanism that cuts the number of bitcoin that can be created in half every four years in order to limit supply.

Eoin Treacy's view

I highlighted the reweighting of Bitcoin in December and as the limit approaches speculation in the cryptocurrency is increasing. The nitty gritty of the process is that in order to inhibit inflation the reward for solving a bitcoin problem halves every four years or, more specifically, every time 210,000 blocks are created. That suggests some time in July will represent the next reweight. Supply will decrease so the value of bitcoins in existence may increase in anticipation of that event. 

The wholly unregulated nature of the market must also appeal to well-heeled citizens in countries with capital controls since it offers a way of expatriating money that is beyond the ability of national governments’ to influence. While some Chinese might be worried about the deterioration of the Yuan, a more mundane reason might simply be a desire to diversify outside one’s own country. Of course it also offers a way for funds that may have been acquired in a less than forthright manner to be spirited away from China. 

Bitcoin prices broke out of a 10-month base in October and ranged with a mild upward bias below $500 until Monday when they broke out. A clear downward dynamic would be required to check momentum.